Piercing the Corporate Veil

A corporation is a separate legal person. It owns its assets, signs its contracts and owes its own debts. Section 92 of Ontario's Business Corporations Act (OBCA) says shareholders are not, as shareholders, liable for any act, default, obligation or liability of the corporation, apart from a few listed exceptions. That separation is the corporate veil.

Piercing the veil means a court sets that separation aside in a particular case and treats the corporation's obligation as the obligation of the person behind it, usually a controlling individual shareholder or a parent company. It is an exceptional, fact-specific remedy. It is not available simply because the corporation cannot pay, because one person owns all the shares, or because the result would seem fairer to the creditor.

Most personal liability for corporate debts in Ontario comes from somewhere else: a personal guarantee, a statute that makes directors liable, or a person's own wrongful conduct.

The leading Ontario statement comes from Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 28 O.R. (3d) 423 (Gen. Div.), affirmed by the Court of Appeal. Courts will disregard a corporation's separate personality only where it is completely dominated and controlled and is being used as a shield for fraudulent or improper conduct. Both elements are required:

1. Complete domination and control. Ownership or control alone is not enough, since nearly every owner-managed company and wholly owned subsidiary is controlled by someone. The claimant must show domination amounting to abuse of the corporate form.
2. A shield for fraudulent or improper conduct. The corporation must have been used to carry out or hide wrongdoing, and that conduct must give rise to the liability the claimant is trying to enforce.

The Court of Appeal applies the test rigorously. In Yaiguaje v. Chevron Corporation, 2018 ONCA 472, it reaffirmed that corporate separateness is the rule and refused to let judgment creditors of a foreign parent company reach the assets of its indirect Canadian subsidiary. A parent and its subsidiary, or an owner and a holding company, are treated as separate unless the Transamerica elements are proved.

Chanderpaul v. Caesars Convention Centre Ltd., 2026 ONCA 332, decided in May 2026, is a recent Court of Appeal restatement of the test. A passenger was seriously injured in a 2013 crash. The underage, impaired driver had been served alcohol at a nightclub operated by Caesars Convention Centre Ltd. Caesars was insured only as a banquet hall, its insurer denied coverage, and after Caesars was noted in default it was dissolved and its assets sold. The plaintiff sued the company's directors and shareholders personally, and a related company that owned the premises, alleging the club was operated negligently, was not properly insured and was made judgment-proof. The motion judge dismissed those claims on summary judgment.

The Court of Appeal found two legal errors in the motion judge's approach to the test:

• Timing. Improper conduct is not limited to the time of incorporation. A legitimately incorporated company that is later used as a shield can still meet the test.
• Role. The conduct does not have to fall outside the controllers' ordinary role as the company's directing minds, or be unrelated to its operations. The veil can be pierced where those in control expressly direct a wrongful act to be done by the corporation.

The clarification may help claimants who can prove the controllers directed a wrongful act, but the bar remains high. The court repeated that corporate separateness is the rule and only exceptional cases warrant departing from it. The plaintiff's evidence, which included two advertisements, photos of patrons holding drinks, four servers' sales records for the night of the crash and a forensic accountant's opinion that revenue could not be reliably determined, did not show systemic wrongdoing or abuse of the corporate form. The appeal was dismissed, as was a cross-appeal, so only the overservice claim against Caesars itself goes to trial. A separate negligence claim against the owners for failing to insure the business was out of time under the Limitations Act, 2002.

Veil piercing is the hardest route to an owner's personal assets. The others are more common:

Lenders, landlords and franchisors rarely rely on veil piercing because they ask for a personal guarantee up front. Statutory liabilities are covered in our entry on directors' liability, and the standards of conduct directors must meet are covered under directors' duties.

Owners protect limited liability by running the corporation as a genuinely separate business:

• Keep corporate and personal bank accounts, credit cards and assets separate, and document any shareholder loans.
• Sign contracts in the corporation's full legal name with your title. OBCA s.10(5) requires the name to appear legibly on contracts, invoices and orders.
• Keep the corporate minute book current so decisions are made and recorded by the corporation.
• Insure the business for what it actually does. Chanderpaul shows how an insurance gap can leave an injured claimant chasing the owners.
• Never direct the corporation to do something you know is wrongful, and do not strip assets to defeat creditors, which can also trigger fraudulent conveyance and oppression claims.

Know your actual exposure. Most owners' real personal risk sits in the guarantees they have signed, and Lamba Law's free personal guarantee tracker totals them and flags upcoming renewals.

Kevin Liu owns all the shares of Liu Custom Cabinets Inc., a Vaughan manufacturer, and is its only director and officer. The company buys hardwood on 60-day terms from Mapleway Lumber Ltd. When a large builder client fails, the company stops paying and owes Mapleway $140,000. Mapleway sues Kevin personally, arguing that he controlled the company completely and should answer for its debts.

The first element is not the problem: Kevin controls everything. The second element fails. Kevin kept the company's accounts separate, signed orders in its name and did not direct it to do anything wrongful; the company simply ran out of money. Under Transamerica and Chanderpaul, control plus an unpaid debt is not enough, so a court is unlikely to pierce the veil.

Mapleway's real protection was its credit application, which included a personal guarantee capped at $75,000 that Kevin signed when the account opened. Mapleway can recover that amount from Kevin under the guarantee and claim the balance in the company's insolvency. If Kevin had instead moved the company's equipment into a new corporation to avoid paying suppliers, Mapleway could have had fraudulent conveyance and oppression claims, and a far stronger case for piercing the veil.