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37 Conn. L. Rev. 637 (2004-2005)
Piercing the Veil in Corporate Groups

handle is hein.journals/conlr37 and id is 655 raw text is: Piercing the Veil in Corporate Groups

Piercing the veil is corporate law's most widely used doctrine to decide
when a shareholder or shareholders will be held liable for obligations of the
corporation. It continues to be one of the most litigated and most discussed
doctrines in all of corporate law. The cases accumulate, as do the aca-
demic commentaries and criticisms.' Although there is near unanimity
among the commentators that the present rules neither guide good deci-
sion-making nor produce consistent or defensible results, and there are
many proposals for reform or abolition of the present law, one sees little
discernable movement in the case law toward a better approach.
Piercing the veil law exists as a check on the principle that, in general,
investor shareholders should not be held liable for the debts of their corpo-
ration beyond the value of their investment. The modem rationale for giv-
ing individual investors limited liability emphasizes eliminating three types
of transaction costs. First are the costs of individual shareholders or credi-
tors monitoring the wealth position of other shareholders, and, second, the
costs and other complexities of each shareholder or creditor monitoring the
riskiness of management actions.2 Third, limited shareholder liability
Phillip I. Blumberg Professor, University of Connecticut School of Law. Special thanks to Phil-
lip Blumberg for all he has taught me about corporate groups. This Article has benefited from most
helpful comments by Phillip Blumberg, Sean Griffith, and Ren4 Reich-Graefe, as well as the comments
and questions by participants at the United Technologies Corporation Symposium, The Changing Face
of Parent and Subsidiary Corporations: Entity vs. Enterprise Liability, held by the Connecticut Law
Review on October 21, 2004. Remaining errors are my own.
1For recent commentary, see, e.g., Stephen M. Bainbridge, Abolishing Veil Piercing, 26 J. CORP.
L. 479 (2001); J. William Callison, Rationalizing Limited Liability and Veil Piercing, 58 Bus. LAW.
1063 (2003); Franklin A. Gevurtz, Piercing Piercing: An Attempt to Lift the Veil of Confusion Sur-
rounding the Doctrine of Piercing the Corporate Veil, 76 OR. L. REV. 853 (1997); Nina A. Mendelson,
A Control-Based Approach to Shareholder Liability for Corporate Torts, 102 COLUM. L. REV. 1203
(2002); Douglas C. Michael, To Know a Veil, 26 J. CORP. L. 41 (2000); Robert B. Thompson, Piercing
the Veil Within Corporate Groups: Corporate Shareholders as Mere Investors, 13 CONN. J. INT'L L.
379 (1999). The basic doctrine is summarized in I PHILLIP I. BLUMBERG, KURT A. STRASSER, NICHO-
2 The classic modem statements are Frank H. Easterbrook & Daniel R. Fischel, Limited Liability
and the Corporation, 52 U. CHI. L. REv. 89 (1985) and Larry E. Ribstein, Limited Liability and Theo-

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