The Multinational Challenge to Corporation Law: The Search for a New Corporate Personality

By Phillip I. Blumberg | Go to book overview

4
Early Judicial Attempts to Adapt Entity Law to the New Economy of Corporate Groups

The doctrine of entity law, regarding the corporation as a separate juridical person with its own rights and obligations distinct from those of its shareholders, presents obvious opportunities for manipulation, particularly where the corporation is owned and controlled by a single shareholder. Accordingly, it was inevitable that, notwithstanding the development of entity law and its reinforcement by the adoption of the policy of limited liability, the courts would develop an accompanying corrective doctrine to avoid the grotesque consequences that would otherwise result from unyielding application of the doctrine.

In cases mainly involving individual shareholders manipulating a controlled corporation, the courts gradually developed a supplemental doctrine providing an escape from entity law. In "exceptional" circumstances involving "abuse" of the corporate form, courts would disregard the corporate entity and its accompanying feature of limited liability and impose liability on the controlling shareholder. This eventually came to be known as "piercing the corporate veil," after the vivid image employed by the courts.


Disregard of the Corporate Entity

As it became apparent that the traditional legal doctrine of entity law and limited liability lent themselves, in unscrupulous hands, to

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