A Piercing Look At Corporate Personality

Business people are generally aware that a company is a separate legal "person" and, by its creation, limits the personal liability of any individual officer, director or shareholder for its behaviour. However, all should be mindful of the exceptions to this general principle both at common law and by statute.

Corporate Separateness

This legal principle has been around since the 1800s, established in the seminal House of Lords decision, Salomon v. Salomon & Co. Ltd. [1896] UKHL 1 where it held, as all modern corporate law statutes also state, a corporation is an entity separate from its shareholders, who are not ordinarily liable for its debts.

The separate legal identity of corporations is routinely upheld. Separation of the legal personality of a corporation will not be disregarded lightly and "corporate separateness is the rule" (Edgington v Mulek, 2008 BCCA 505 at paras 20-21). This separation is also regularly observed as between parent corporations and their subsidiaries (Dowd v Skip the Dishes, 2019 MBQB 63 at paras 104-105).

Behind the Veil

There are limited circumstances where the courts will "look behind" or "lift the corporate veil" to find individuals responsible for bad company acts, including holding them liable for misconduct or debts of the corporation.

Some commentators complain the authorities in this area are an amalgam of vaguely stated platitudes. This is a fair criticism in certain respects and there are some differences in approaches taken by Courts across the country. However, it is clear enough that the circumstances to lift the veil remain narrow. It should not be lifted "absent extraordinary circumstances" or at least only "sparingly" (Yaiguaje v Chevron Corporation, 2018 ONCA 472 at para 70 [Yaiguaje] and Holmes v Jastek, 2019 SKCA 132 at para 121 [Holmes]).

Policy Behind Separation

Attempts to introduce a broad and overriding exception to corporate separateness wherever it is "just and equitable" to do have not been recognized (Yaiguaje at 67). This is viewed as too uncertain a standard to apply fairly. As noted by the Ontario Court of Appeal, such an elastic standard would not be appropriate given the clear statutory language in business corporation legislation across Canada.

Such a position "would also have a significant policy impact on how corporations carry on business in Canada. Corporations have stakeholders. Creditors, shareholders, and employees, among others, rely on the corporate separateness doctrine that is long-established in our jurisprudence and that is a deliberate policy choice made in the CBCA. Those...