Piercing the Corporate Veil
Subjecting Owners to Liability for Business Obligations
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What is Piercing the Corporate Veil?
When courts find that the corporate organization is being misused, then the corporate entity can be disregarded. Basically, the shareholders lose the limited liability protection and are treated like partners. Partners are personally liable for the debts and obligations of the business.
What is the Alter-Ego Theory?
The theory or justification for piercing the corporate vei is known as the alter ego theory. If the corporate officials disregard the corporate entity and act the manner of a partnership, then there is no unity of ownership and interest. Therefore the corporation ceases to exist.