Question

Although a major advantage of the corporate form of entity is the liability protection for its principals, there are some cases where a court will disregard the corporate entity and allow a creditor or judgment holder to reach through the corporation to the personal assets of its principals.

A) This is called piercing the corporate veil and may result in significant liability for the corporation's principals.
B) Ultimately, the law provides a fairness standard for when the corporate veil should be pierced.
C) Business owners and managers can limit liability and control risk by understanding the circumstances under which a court will pierce the corporate veil.

Answer 1

A) This is called piercing the corporate veil and may result in significant liability for the corporation's principals.

Step-by-step explanation:

The phrase "Piercing the corporate veil" is used to describe a situation where a court will put aside limited liability and hold a corporation's shareholders or directors liable for the actions and liabilities of the corporation.

This is not a common procedure and courts usually do this based on the following:

1. "unity of interest and ownership": interest of the shareholders doesn't stand together anymore.
2. "wrongful conduct": illegal or wrongful actions by the directors or shareholders.
3. "proximate cause": as a result of the illegal or wrongful actions, other parties were harmed.