It’s Time To Pierce the Corporate Veil

Email Print

An interesting case is going to be heard by the Supreme Court, the Hobby Lobby case. This is a family-owned corporation. For religious reasons, the owners don’t want to have to supply certain contraceptives mandated by government. Lower courts upheld their position. Since the corporation is closely-held, this case is, pragmatically, a no-brainer for me. The family and its organ, the company, are one and the same, and they have the right to provide or not provide what they please, for religious or any other reasons. However, the U.S. law distinguishes the corporation as a separate person, causing this not to be a no-brainer. What I think is that the corporation is definitely not a person. However, its owners can certainly create it to act like a pseudo-person on their behalf by appointing officers with powers, and this company can then create limited liability contracts if others are willing to enter into them. I am thinking in particular that it can issue risky bonds, if it can find buyers, who know that in default they may not recover fully. But in other cases such as if the company damages people or commits crimes, then there surely cannot be limited liability. The owners are responsible. I believe in piercing the corporate veil in the latter cases.

Now, some people are sending in friend of the court briefs that argue that the Court must rule against Hobby Lobby, because to do otherwise is to assign a religious right to the person that is the corporation and that pierces the corporate veil and wrecks limited liability and the whole theory of a corporation being a person under the law. This approach is not based in any kind of justice or even common sense. It asks for a ruling so as to preserve the existing structure whereby a corporation is a person. The court is likely to rule that if you form a company, it’s a “public” thing and must obey public laws and if the law says your insurance plan must offer contraceptives, then so be it. You must offer them. Or else it will find some other rationalizations. The court is not about to pierce the corporate veil, end this very old fiction that the corporation is a person, and cause a restructuring of contracts around a corporation’s not being a person. But I think the time is long overdue that the corporate veil be pierced and that we recognize the reality that a company is just a convenient way of handling the funds provided by its owners. It’s not separate from those owners. Therefore, if the owners of Exxon have a charter that allows them to place an item on the ballot that precludes providing contraceptives in their insurance plans, they have a perfect right to do so. We really do not have to worry about corporate America being disrupted if the fiction of corporate personhood is ended.

9:24 am on February 9, 2014