Everyday Veil Piercing

<p><span>Under veil-piercing doctrine, shareholders may lose the privilege of limited liability by disregarding the legal separation between themselves and the companies they own. The doctrine cautions, however, that abrogating limited liability is an exceptional remedy that should apply only in the presence of certain factors. Among them are fraud on creditors; inattention to formalities; asset commingling; and undercapitalization. </span><span>Yet courts, practitioners, and scholars lack everyday base rates for these factors—unfortunate given that knowing their prevalence could aid calibration of and rethinking about how exceptional the remedy ought to be.</span></p> <p><span>I begin addressing these missing base rates by estimating<span> the annual prevalence of piercing factors in U.S. small businesses. I conduct two pre-registered studies to reach these estimates</span>, including one with a method, the list experiment, used for the first time in legal-doctrinal studies. In both, I find <span>inchoate fraud on creditors, inattention to formalities, commingling, and undercapitalization to be endemic.</span></span></p> <p><span>The Article’s estimates translate to piercing factors </span><span>appearing in millions of businesses at any given time. They complement earlier studies showing that courts favor piercing claimants more often than exceptionalist rhetoric found in case law suggests. These findings, the Article explains, turn veil-piercing doctrine’s attention toward wrongdoing by corporate principals<i>. </i>Such a turn would be consistent with veil piercing being understood not as allocating liability among corporate actors but as responding to culpable<i> </i>corporate abuses. Although such an understanding would not compel any particular recalibration of the doctrine, it would nevertheless supply grist to debates on whether to <span>expand, narrow, eliminate, or reimagine it.</span></span></p>