The corporate shield or corporate veil is a term used to describe the separation of a corporation from its owners. As a separate entity, a corporation or limited liability company (LLC) is set up to "shield" the owners of the corporation (or members of the LLC) from personal liability for the debts or negligence of the business.
The phrase piercing the corporate veil is used to describe the action of a court to hold corporate shareholders personally liable for the debts and liabilities of a corporation.
Corporations are separate entities from their shareholders and in normal circumstances, if a corporation is sued, the individual shareholders and officers cannot be brought into the lawsuit. But there are cases in which the corporation's officers and shareholders could be sued for negligence or for debts; the action of bringing in these shareholders to be sued is called "piercing the corporate veil" or "lifting the corporate veil."
Two instances in which the corporate veil might be pierced by the court, allowing shareholders to be sued:
- In the case of fraud, in which the corporation was found to be a sham that was set up for the purpose of carrying on fraudulent deals or for fraudulent purposes.
- In the case of egregious and willful activity by corporate shareholders or officers which put corporate gain over public good.