What is Corporate veil?

The corporate veil refers to the legal distinction between a corporation and its shareholders or directors. This veil protects the personal assets of the company’s owners from the liabilities and debts of the corporation. In Switzerland, as in many other jurisdictions, the corporate veil is an important concept in corporate law, as it allows businesses to operate as separate legal entities, shielding individual owners from personal liability, except in certain circumstances.

Key Features of the Corporate Veil

  • Limited Liability: One of the main advantages of the corporate veil is that it limits the liability of shareholders or directors to the amount of their investment in the company. This means that personal assets are typically protected from any claims or debts the company incurs.
  • Legal Separation: The company is treated as a distinct legal entity, capable of owning property, entering into contracts, and being held liable for its actions independently of its shareholders or directors.
  • Protection from Personal Liability: The corporate veil protects individual owners from personal financial risk, allowing them to invest in and operate businesses without putting their personal wealth at risk.

Piercing the Corporate Veil in Switzerland

While the corporate veil provides legal protection, it can be “pierced” in certain circumstances where the separation between the company and its owners is deemed to be abused. This can happen if the company is used to perpetrate fraud, evade legal obligations, or conduct activities that violate the law.

  • Fraudulent or Improper Conduct: If a company is established with the intent to defraud creditors or evade legal responsibilities, the Swiss courts may pierce the corporate veil and hold the individuals personally liable.
  • Abuse of Corporate Structure: If a shareholder or director uses the corporate entity for improper purposes, such as to avoid contractual obligations or for personal gain, the court may disregard the corporate structure and impose personal liability.

In Switzerland, as in many other countries, the corporate veil is fundamental to ensuring that businesses operate effectively while offering protection to their owners. However, it is crucial that businesses adhere to the law to avoid the risk of personal liability through the piercing of the corporate veil.