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Piercing the Corporate Veil Explained

The document discusses the taxation of corporations, emphasizing that corporate income is distinct from stockholders' income, who may still owe taxes on dividends. It also outlines the doctrine of piercing the corporate veil, which allows courts to hold stockholders liable for corporate actions under certain circumstances, such as fraud or evasion of obligations. This doctrine applies to both corporations and individuals associated with them, effectively treating the corporation as an association of persons when the veil is pierced.

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Ashryle Salazar
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8 views1 page

Piercing the Corporate Veil Explained

The document discusses the taxation of corporations, emphasizing that corporate income is distinct from stockholders' income, who may still owe taxes on dividends. It also outlines the doctrine of piercing the corporate veil, which allows courts to hold stockholders liable for corporate actions under certain circumstances, such as fraud or evasion of obligations. This doctrine applies to both corporations and individuals associated with them, effectively treating the corporation as an association of persons when the veil is pierced.

Uploaded by

Ashryle Salazar
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

GENERAL PROVISIONS

244

4) In taxation, the income of the corporation is not the


income of the stockholders who may still be required
to pay taxes on the dividends they may derive from
such income.

b. Doctrine of piercing the veil of corporate entity

The separate personality of a corporation is intended


to protect its stockholders from liability for corporate acts.
Nonetheless, in order to promote justice and prevent
inequity, the courts will not hesitate to pierce the corporate
veil, (i.e., the cloak or shield that keeps separate the
respective liabilities of the corporation and its stockholders),
if such separate personality is used to defeat public
convenience, justify a wrong, protect fraud or defend crime
(Koppel vs. Yatco, 77 Phil 496); or where a corporation
serves as a mere alter ego or conduit of a person or an

instrumentality, agency adjunct of another corporation


or

(San Juan Structural and Steel Fabricators, Inc. vs. CA, 296
SCRA 631); or where the corporate fiction is used to evade
contracts and obligations, (Reynoso vs. CA, 345 SCRA
335), or confuse legitimate legal or judicial issues (R. F.
Sugay & Co. vs. Reyes, 120 Phil 1497). The doctrine may
apply to corporations as well as natural persons involved
with the corporation. (I/AME vs. Litton and Company, G.R.
No. 191525, December 13, 2017)

The primary consequence of piercing the veil is to

hold the stockholders directly liable for corporate acts or


obligations. Where the separate personality of the
corporation is disregarded, the corporation will be treated
merely as an association of persons and the stockholders or

members will be considered as the corporation, i.e., liability


will attach personally or directly to the officers and
stockholders. (Yao, Sr. vs. People, G.R. No. 168306, June
19, 2007) In order, however, that the separate personality of

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