ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

How the Corporate Veil can be abused by any Multi-National Enterprise (MNE)

Updated on July 4, 2015

The Corporate Veil

I think most of us are aware of what actually is the corporate veil. It means that the company has an artificial legal personality and amounts to a person in the legal realm. For those who are not familiar with this concept, a distinction between human personality and legal personality can be enlightening. This has been well put by authors like Alan Dignam and John Lowry. Legal personality is where in the eyes of law, the entity is perceived as a real person. Human personality does not equate to legal personality. For example a child has no legal personality. He/she is not capable of owning properties. And of course in contrast, legal personality does not equate to human personality as well (eg companies). Since a company is accorded a legal personality, it is treated as a real person in the eyes of law, and can own properties and even can bear its own liabilities. Consequently, should there be a loss, investors would only suffer a limited liability ie. the amount initially invested. The liabilities of a company is not the liabilities of the shareholders/investors.

However, not many understand the danger of this concept of corporate veil in the context of group structures. This is where the parent company and its subsidiary company each has their own distinct legal personality. Should the subsidiary company suffer serious losses, the parent company would not be accountable to pay those debts.

So there can be serious abuses of this concept. One of the most famous English case has to be Adams v Cape Industries Plc. This is where a subsidiary company was established in the US for the installation of asbestos factories. Asbestos are potentially harmful and the employees consequently suffer personal injury. In short, the arrangement was so that all the risks were born by the subsidiary company and the parent company can reap all the benefits.

From a legal perspective, the victims (employees) can only sue the subsidiary company because in the eyes of law, the subsidiary is the legal entity which harmed them; not the parent company. And of course, all the assets of the subsidiary had been transferred to the parent company prior to any form of litigation.

As such, it is important to understand the nature of any company before we work for it, and to understand the legal issues that may arise.

Can we penetrate this artificial veil?

It is quite obvious what the investors had in mind : extend the primary protection that is the parent company to achieve a secondary protection, its subsidiary. Deploy new risky schemes on the subsidiary so that we can have the parent company to fall back to. All assets were transferred to the parent company leaving the risks to its subsidiary, but in terms of law, this is still legal. This is absurd, right?

What can the working class or the victims in this case do? Is veil piercing possible? Yes, it is. If the veil is pierced (or lifted or penetrated, then the parent company would be liable for the losses of its subsidiary) But they are so limited that none of the possible methods apply in this situation. Nevertheless, we shall take a look. There are basically three ways for this:

1. The Agency relationship

This is where the subsidiary company is seen to be so dependent and reliant on the parent company. And the corporate veil can only be pierced (and hence the parent company would be liable) if there is a day-to-day control over the subsidiary by the parent company. This is usually unlikely in most situations. Where there is a subsidiary company, there is almost always delegation for quick management. Only the broad policies and goals are communicated down the command chain. It is unlikely for control on a daily basis to be found.

2. Single economic entity

This previously treats two separate companies who share the same finance as one single entity but at present it requires an uncertainty in the interpretation of a document or statute. It is now rarely applicable.

3. Fraud

Fraud in this aspect only covers scenarios where a person is trying to avoid his pre-existing legal obligations. For example, Mr X fraudulently embezzled funds from Company A, and then transferred them to his newly-incorporated company.

As seen, none of these situations are able to lift the corporate veil of the abuse by the above MNE scenario. I hope readers now understand better on the danger of corporate veil abuses, and understand that the law can have significant impact in our lives.


    0 of 8192 characters used
    Post Comment

    • ladyguitarpicker profile image

      stella vadakin 

      2 years ago from 3460NW 50 St Bell, Fl32619

      Yes, anyway to get out of a legal obligation and pass the buck to someone else.

    • frozenink profile imageAUTHOR


      3 years ago

      Thanks for stopping by, Larry.

    • Larry Rankin profile image

      Larry Rankin 

      3 years ago from Oklahoma

      Interesting look into the corporate world.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)