Piercing the Corporate Veil

Recently Korean courts have rendered noteworthy decisions based on the piercing the corporate veil principle (법인격부인론).

Upon filing the articles of incorporation with the Registry, a company is treated as a separate juristic person, whose shareholders or investors have limited liability in principle. Common law countries usually uphold this principle of separate personhood, but in exceptional situations may "pierce" or "lift" the corporate veil. This principle has been acknowledged as a doctrine of the disregard of the corporate entity in civil law countries including Korea.

Key words
separate legal person, limited liability, one-man company, substantial dominion, illegality, fraud

Leading Supreme Court Case
Take an example of the Supreme Court Decision 97Da21604 delivered on January 19, 2001.

A contractor-seller failed to complete the construction of the building within a reasonable period of time so that the [one-room officetel] purchaser can enter the parcelled out building.

Even though the seller maintained the external appearance of a company,the defendant actually owned most shares of the company and all the management decisions were made at his discretion without due process of resolutions at shareholders meetings or the board of directors.

The office of the company was occasionally closed with no employees, and the assets of the company and those of its owner shareholder were co-mingled. As a result, the company had almost no assets in reality.

Disregard of the Corporate Entity
The Supreme Court, invoking Article 2 of the Civil Act ruled as follows:


 * Where a company maintains the external appearance of a juristic person . . . and, in substance, it is equivalent to other person's private enterprise behind the corporate veil . . ., the denial of any responsibility of the person behind the corporate veil with respect to an action of the company, based on the ground that such person is a separate entity and the legal effect of such action is attributed only to the company, cannot be permitted. It cannot be allowed in light of justice and equity for the individual to abuse the corporate entity in violation of the principle of trust and good faith. Therefore, the company as well as the person behind the corporate veil must be responsible for the actions of the company.