Piercing the corporate veil: an overview
Piercing the corporate veil allows, in specific cases, the partners' assets to be reached for the company's debts. Understand when this usually occurs and how to prevent it.
What is piercing the corporate veil
This is an instrument that allows, in specific situations, the temporary setting aside of the separation between the company and its partners, so as to reach personal assets to satisfy the company's obligations. It is an exceptional measure: as a rule, the legal personality is preserved, and the piercing occurs only when the requirements provided for by law are present.
When it tends to be applied
Its application depends on the case and the applicable legislation. In general, it tends to be associated with situations such as:
- Abuse of the legal personality, such as deviation of purpose
- Commingling of assets between the company and the partners
- Use of the corporate structure to defraud creditors
- Specific contexts provided for in consumer, labor and environmental rules
How the procedure works
As a rule, the piercing is analyzed within a legal proceeding, with an opportunity for the party who may be affected to present a defense. This means that, in general, it does not occur automatically, but through a reasoned decision, after the requirements have been demonstrated. The procedural details vary according to the sphere and the type of dispute.
How to reduce the risk
The best way to reduce exposure is usually prevention. Keeping the accounting organized, separating personal and business accounts, documenting corporate decisions and avoiding using the company for purposes unrelated to its object are practices that tend to ward off the scenarios that justify the measure. Regularity, in general, is the main ally.
Frequently asked questions
Does piercing the corporate veil mean the end of the company?
No. As a rule, piercing the corporate veil neither extinguishes the legal personality nor closes the company. It only allows, on a specific basis and for a particular case, the assets of the partners or managers to be reached. Once that dispute is concluded, the asset separation tends to remain valid for all other purposes.
Can any creditor request the piercing?
It depends on the case. The request is usually possible when there are indications of the legal requirements, but it is up to the competent authority to assess whether they are present, as a rule after the party who may be affected has presented a defense. Mere default, in itself, is normally not enough to justify the measure.
Need guidance on this topic?
This article is informational. For guidance on your specific case, talk to our team.