UP law dean explains corporate veil doctrine

A corporation’s separate legal identity does not protect its owners from accountability if they use the company to commit fraud, conceal assets or evade legal obligations.

Atty. Paolo Tamase, associate dean of the University of the Philippines (UP) College of Law, said in a radio interview that the concept could become relevant to the impeachment proceedings against Vice President Sara Duterte.

The prosecution has sought to link wealth allegedly associated with Duterte to corporate entities, including GenCorp and Metro City Chao.

Tamase said prosecutors would have to establish the factual and legal grounds for treating corporate assets and transactions as belonging to an individual rather than exclusively to the companies.

“Generally, the corporation has a separate personality,” Tamase said, explaining that the principle protects legitimate businesses by separating corporate assets and obligations from the personal wealth of their shareholders.

However, that separation cannot be used as a shield for fraud or other illegal activities, he said.

Expert witnesses

Courts may consider several circumstances when determining whether to pierce the corporate veil, including the commingling of corporate and personal funds, inadequate separation of assets, undercapitalization, fraud, evasion of legal obligations and failure to observe corporate formalities.

Evidence that a company’s finances were not genuinely kept separate from those of its owners could support an argument that the corporation was being used as an extension of an individual, Tamase said.

He stressed, however, that owning or controlling a corporation does not automatically make a shareholder personally liable for its obligations or establish that the company’s assets belong to that person.