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17 Willamette L. Rev. 371 (1980-1981)
Piercing the Corporate Veil

handle is hein.journals/willr17 and id is 387 raw text is: PIERCING THE CORPORATE VEIL DAVID H. BARBER* INTRODUCTION According to firmly established legal principles, the corpora- tion is recognized as a legal entity, separate and distinct from its shareholders. The obligations of the corporation are the respon- sibility of the corporate entity, not the shareholders, who are lia- ble only for the amount they voluntarily put at risk in the business venture.1 The insulation of shareholders is known as limited liability.' The purpose of limited liability is to pro- mote commerce and industrial growth by encouraging sharehold- ers to make capital contributions to corporations without sub- jecting all of their personal wealth to the risks of the business. This incentive to business investment has been called the most * Professor of Law, J. Reuben Clark Law School, Brigham Young University. J.D. 1967, Stanford Law School; M.B.A. 1978, University of Utah. 1. See, e.g., Amoco Chemical Corp. v. Bach, 222 Kan. 589, 593, 567 P.2d 1337, 1341 (1977), which states: We start with the basic premise that a corporation and its stock- holders are presumed separate and distinct, whether the corporation has many share- holders or only one. Debts of the corporation are not the individual indebtedness of its stockholders. See also 18 AM. JUR. 2d Corporations, §§ 14-16 (1965); 1 W. FLETCHER, CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS §§ 41-46 (1974). 2. 13A W. FLETCHER, supra note 1, at § 6213. 3. N. LATTIN, THE LAW OF CORPORATIONS 11-12 (2d ed. 1971). See also Douglas & Shanks, Insulation from Liability Through Subsidiary Corporations, 39 YALE L.J. 193 (1929). In Arnold v. Phillips, 117 F.2d 497 (5th Cir. 1941), the general creditors of a bank- rupt corporation attempted to set aside a deed of trust against the corporation's physical facilities, which had been executed in favor of the president (and sole shareholder) of the corporation four years before bankruptcy was declared. The court upheld the validity of the deed of trust and refused to set aside the foreclosure sale in which the sole share- holder was the purchaser. The court concluded: We do not think a case is presented where the corporate entity ought to be disregarded as being a sham, a mere obstacle to justice, or instrument of fraud. It is not denied that a corporation, owned by one man save for qualifying shares, is lawful . . . . That it was created to shield the owners from liability beyond the capital set Up by the charter does not show an unlawful or fraudu- lent intent, for that is the main purpose of every corporation. It becomes an evidence of fraud only when the capital is unsubstantial and the risk of loss great, or the contributions to capital are greatly over-valued and the like. Id. at 502.

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