The law gives protection from liability to those who set up their business through a corporation. Those protections are not absolute. Courts will go around a corporate structure (this is called "piercing the corporate veil") in certain cases.
The Court in Vila Holdings Inc v Rivnell Projects Inc, 2020 ABQB 388 looked at this issue, saying at paragraph 33:
[33] It is a basic principle of the law of business associations that individuals are entitled to conduct business through an incorporated, limited liability company. This is an essential element of commerce. In this case the principals of both Rivnell and Vila chose to use their respective companies in entering into their business arrangement, as was their choice to make.
[34] In the ordinary course, therefore recourse for breach of contract and under the Promissory Note would be available only against Rivnell.
[35] However, in certain limited circumstances, the Court may affix personal liability to an individual notwithstanding that she or he has acted through a corporate vehicle. The corporate veil may be pierced if that person has engaged in fraud or other improper conduct, or where the corporate actor and the individual behind it are alter egos of each other: UBG Builders Inc (Re), 2017 ABQB 401.
[36] Among the factors to be considered are whether : (a) the shareholder treats itself and the corporation interchangeably; (b) the corporation is merely intended to deflect monies from their proper usage; (c) the shareholder intermingles the corporations affairs with its own, such that the shareholder fails to recognize the corporations separate identity; (d) the shareholder treats the corporation’s property as though it belongs to the shareholders without regard for the interest of those dealing with the corporation: UBG at para 74; Tirecraft Group Inc v High Park Holdings ULC, 2010 ABQB 653 at paras 21, 22 and 25.
[37] While fraudulent conduct is one basis for piercing the corporate veil, it is not a necessary prerequisite. The Court must look at the overall context and interests of justice. It will pierce the veil when the corporation has been completely dominated and controlled by another company or individual and has been used as a shield for fraudulent or improper conduct Elbow River Marketing Limited Partnership v Canada Clean Fuels Inc., 2012 ABCA 328 at para 16.
Piercing the Corporate veil can be a useful theory in litigation. If you would like to discuss this matter, please feel free to contact us.
The information contained in this article is not legal advice. No solicitor client relationship is formed through this article. The reader is encouraged to retain counsel for advice in these matters.
