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” Ordinarily, shareholders are not personally responsible for corporate liabilities. However, if a corporation has been operated as the “alter ego” of its shareholders, the corporation’s creditors—including tort claimants—may be permitted to “pierce the corporate veil” and enforce their claims directly against the shareholders. (Similarly, an action may lie on an “alter ego” theory against the corporate parent of a wrongdoing subsidiary.)

Two essential elements must be established: Unity of interest: It must appear that the corporation was influenced and governed by the persons sought to be held liable for its conduct; and there must be such “unity of interest” and ownership that the individuality or separateness of the corporation has ceased to exist (or never existed in the first place). Alter ego liability necessary to avoid inequitable result: Also, the facts of the case must be such that adherence to the “fiction” of the corporation’s “separate existence” would sanction a fraud or promote injustice.

Courts are more likely to find the requisite “injustice”—and thus pierce the corporate veil—for tort claimants than for contract creditors. By and large, contract claimants voluntarily choose to deal with the corporate entity and to look only to it and its credit for payment. In contrast, tort creditors’ claims customarily do not involve any element of voluntary dealing with the corporation or ability to protect against loss.”

[California Practice Guide: Personal Injury [certain citations omitted]]


Post Author: lawofficesofjamesrdickinson