Research On The Appliance Of The Doctrine Of Disregard The Corporate Entity

This paper concentrates on the appliance of the doctrine of disregard the corporate entity, which is very controversial and litigated in common law and civil law. In China it is widely agreed that it is necessary to impose personal liability on shareholders who abuse the privilege of limited liability. The newly enacted Company Law adds a new a article that shareholders would be responsible for the corporate debt when they abuse the privilege of corporate entity and limited liability. In practice, judges would face much difficulty in applying this article because this article gives little guidance. So this paper tries to answer when it is necessary to disregard the corporate entity.This paper includes three chapters. The first chapter discusses the value and function of the doctrine of disregard the corporate entity. The author argues that the doctrine challenges not only the principle of limited liability but the concept of corporate entity. And Article 20 of the Company Law regulates the most common type of the doctrine of disregard the corporate entity that is to hold shareholders personal liability for corporate debts. The second chapter presents the issue of how to interpret the Article 20, and the author hold that when judges make a decision of piercing the corporate veil they should consider a series of factors such as under capitalization,commingling of assets/affairs,voluntary debtor or involuntary debtor,etc. None of these factors is decisive. The third chapter introduces another challenge for corporate entity that is not related to impose shareholders personal liability for corporate debt. Another challenge includes that judge apply some statutes by disregard the separate entity between corporate and shareholder. Reverse piercing is also an important type of the doctrine of disregard the corporate entity.