Confronting the Duty to Capitalize in Veil-Piercing

In corporate law, the doctrine of “piercing the corporate veil” allows courts to hold shareholders personally liable for corporate obligations. The doctrine—which now also applies to entities other than corporations—has been widely criticized as imprecise and unworkable. I respond to that criticism in the area of veil-piercing law which remains most intractable—the case of the tort victim who remains unsatisfied after exhausting corporate assets. Although most commentators have eschewed talk of any duty owed by the business owner to vest the business with sufficient assets, I argue that courts and legislatures should recognize—confront—such a duty.

I look to negligence law for the proper development of a duty, and then analyze what was formerly “veil-piercing” doctrine under this new negligence analysis. I conclude that explicitly recognizing a duty to capitalize will allow orderly analysis to replace the unprincipled decision-making which currently exists under the “veil-piercing” doctrine.