Piercing the corporate veil

by Stephen on June 26, 2010

Zoran Corp. v. Chen:  Zoran sold equipment components to companies owned by Chen and his relatives, in which many corporate decisions were heavily influenced, if not entirely controlled, by Chen despite the fact that others were officers.  Zoran sued Chen on a theory of “alter ego liability” for debts owed by the corporations.  After the trial court dismissed the case on summary judgment, Zoran appealed.  Held:  issues of fact remained as to whether Chen was the alter ego of the debtor corporations (making Chen liable for their debt), so the case was remanded to the trial court for trial.  The determinative fact seemed to be that Chen directed the maintenance of very low account balances in his corporations and sent corporate funds to another corporation he controlled in Taiwan.

The alter ego theory, or “piercing the corporate veil”, relies on the court weighing several factors reflecting on whether an individual exercises “domination and control” over the corporation, but the ultimate issue is whether treatment of the corporation as a separate entity from the individual would amount to a fraud on creditors.  (Not using “fraud” in its technical sense here.)

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