Piercing the Corporate Veil
Disregard the corporate fiction
Creditors ask the court to disregard the separateness between shareholder and corporation
(so that shareholders may be held liable)
When veil might be pierced:

Started w/ too few assets to pay debts (under capitalization not bad per se, but could be
 fraud if objective is to operate risky business while avoiding claims of creditors)
Alter ego (when shareholders mix personal & corporate transactions)

Failure to adhere t corporate formalities (holding directors & shareholders meetings, keeping books, etc)
(piercing) can also apply . . .
To corporations who operate business through a subsidiary
Subsidiary: majority of stock owned by a parent company
Business Judgment Rule
Courts will not second guess business judgment of officers & directors when they act in good faith…
Must:
•
•
•
Make informed decision
Have no conflict of interest
Have a rational basis
Self-Dealing
Deprives officers and directors of the protection of the business judgment rule
Fiduciary Duty
One of the highest duties imposed by law

Arises in a fiduciary relationship

Fiduciary relationship is a relationship of trust and confidence


Can be formal: atty/client, partners in partnership, officers & directors/corporation
OR can arise informally in SPECIAL relationships of trust and confidence
Fiduciary Duties officers and directors owe the corporation:
Of loyalty (no self-dealing)
Of care
No fiduciary duty
In arms-length business transactions i.e borrower/lender, insured/insurer etc
MUST BE SPECIAL REALATIONSHIP