Arbitration Agreement Piercing the Corporate Veil

Arbitration Agreement Piercing the Corporate Veil: An Overview

Arbitration agreements are commonly used in business contracts to resolve disputes between parties outside of court. In recent years, the use of arbitration agreements has expanded to encompass a variety of issues, including disputes related to the piercing of the corporate veil.

What is the corporate veil?

The corporate veil is a legal concept that separates a company`s assets and liabilities from those of its owners. This means that the shareholders of a corporation are generally not personally liable for the debts and legal obligations of the corporation. This separation of liability is considered one of the main advantages of incorporating a business.

What is piercing the corporate veil?

Piercing the corporate veil is a legal doctrine that allows a court to disregard the corporate structure and hold the individual owners personally liable for the debts and obligations of the corporation. This occurs when a court determines that the corporation has been used as a mere shell to perpetuate fraud or wrongdoing or when the owners have failed to observe corporate formalities.

What is an arbitration agreement?

An arbitration agreement is a contract between parties that agrees to resolve disputes through arbitration rather than through court litigation. In an arbitration agreement, the parties agree to submit their dispute to an arbitrator who will make a binding decision.

Can an arbitration agreement be used to pierce the corporate veil?

Yes, an arbitration agreement can be used to pierce the corporate veil. However, it is important to note that the use of an arbitration agreement does not guarantee that the corporate veil will be pierced. The agreement must specifically outline the circumstances under which the court can pierce the corporate veil and hold the owners personally liable.

To effectively use an arbitration agreement to pierce the corporate veil, the agreement should:

1. Clearly state the grounds for piercing the corporate veil, such as fraud, abuse of corporate form, or failure to observe corporate formalities.

2. Establish the standard of proof required to pierce the corporate veil. This should be a high standard, such as “clear and convincing evidence.”

3. Indicate that the arbitrator has the authority to pierce the corporate veil if the grounds and the standard of proof are met.

4. Include a provision allowing the court to enforce the arbitrator`s decision to pierce the corporate veil.

Conclusion

Arbitration agreements can be a powerful tool in resolving disputes related to the piercing of the corporate veil. However, it is important to carefully draft the agreement to ensure that it is enforceable and that the standards for piercing the corporate veil are clear and appropriate. As always, it is advisable to consult with legal counsel when drafting such an agreement.