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  • Anmol Trehin

Piercing the Corporate Veil: Quebec's Legal Lingo Decoded

In our mission to demystify legal intricacies for businesses, we're thrilled to inaugurate a fresh blog series – "Legal Lingo." This series designed to untangle the complex web of legal jargon prevalent in business law, offering a straightforward understanding of crucial terms.


Today, we dissect the concept of piercing the corporate veil.


What is a Corporate Veil?


Picture corporations as legal entities, akin to individuals, endowed with a juridical personality. This legal persona allows a corporation to own assets, shoulder debts, sue others, be sued, and sign contracts. In short, a corporation possesses rights akin to an individual but stands distinct from its members. However, crucially, the actions of a corporation solely bind the entity itself, and this distinctive boundary is referred to as the corporate veil.


Understanding Piercing the Corporate Veil


Delving into the heart of our discussion, piercing the corporate veil is as the act of going beyond the separate legal existence of a business. This means holding shareholders, and directors personally accountable for the business's deeds. In Quebec, the legal landscape identifies three situations warranting the piercing of the corporate veil: instances where the company's separate legal identity is exploited to conceal 1) fraud; 2) abuse of rights; or 3) a contravention of a rule of public order (s 317 C.C.Q.).


Beyond Piercing the Corporate Veil: Other Sources of Liability


Piercing the corporate veil, while exceptional, serves as a protective measure designed to safeguard the public interest. Each scenario undergoes meticulous scrutiny on a case-by-case basis. A notable case, Lessard v Bank of Montreal, sheds light on the intricate nature of corporate accountability. In this instance, where a corporation faced a car theft, director Lessard's actions raised eyebrows. Since there was no fraudulent use of the corporation, the court invoked the extracontractual responsibility of 1457 C.C.Q. This case underscores a crucial reality – a corporation does not bestow complete immunity upon its members. Shareholders or directors can find themselves liable through alternative avenues, reinforcing the need for a nuanced understanding of corporate responsibility.

Conclusion


In essence, piercing the corporate veil is a gateway to a deeper understanding of the intricate relationships between businesses and the law. Stay tuned as we continue to decode more legal lingo in our ongoing series.


This blog post is not legal advice and is for general informational purposes only. Always speak with a lawyer before acting on any of the information contained herein.

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