The separate legal personality of the corporation as distinct from its shareholders has been a corner stone of corporate law since the landmark decision of Salomon v. Salomon,  AC 22. Canadian courts have consistently held that a corporation is a distinct legal entity from its shareholders who are not liable for the acts of the corporation. However, over the last century, the courts have recognized a small exception to this distinct legal status where they have allowed litigants to “pierce the corporate veil” to impose liability directly on shareholders for the acts of the corporation. Nevertheless, two recent Canadian cases, including one from British Columbia, have reaffirmed that this is a very limited crack in the corporate veil.
In Chan v. City Commercial Realty Group, the Ontario Superior Court reaffirmed that the identity, rights and obligations of corporations and their shareholders are distinct and that the separate legal personality of a corporation will not be disregarded lightly. The Court did recognize that it had the jurisdiction to pierce the corporate veil to impose liability directly on shareholders but limited that power to largely fact specific situations where the corporation has been used for illegal, fraudulent or improper conduct.
More recently in British Columbia, the British Columbia Supreme Court in Emtwo Properties Inc. v. Cineplex (Western Canada) Inc., further constrained the jurisdiction to pierce the corporate veil by describing that power in these terms: “The circumstances in which the Court will lift the veil and impose the contractual liability of a subsidiary on a parent require more than the exercise of total control by the parent over the subsidiary. The corporate veil will not be pierced absent conduct akin to fraud.”
Business owners can take solace that the courts remain strong in their recognition of distinct legal personality of the corporation and the limited ability to pierce the corporate veil.
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