corporate veil

Incorporation of a company raises a separate legal liability in the new company, which is distinct from that of the company's directors and shareholders. A company is a separate legal entity from that of its directors and shareholders and therefore has a separate and distinct liability from those directors and shareholders.

The operation of this basic legal principle is known as "the corporate veil", because in the event that a company commits a wrong (such as committing a breach of contract), the company is liable for the wrong and not the individual directors and shareholders of the company. Directors and shareholders of companies are therefore insulated from the liability of the company in all but exceptional circumstances, such as fraud and wrongful trading.

Usage: The creditor was unable to recover the debt from the directors of the company, as they were unable to pierce the corporate veil.

Related Words: limited liability; legal capacity; shareholders; directors; separate legal personality; company.