Kinney Shoe Corp. v. Polan 939 F.2d 209 (4th Cir. 1991) is a US corporate law case, concerning piercing the corporate veil

Piercing the corporate veil

Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders or directors. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it...

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Facts

Kinney Shoe Corp sued Mr Lincoln M Polan to pay money outstanding on a sub-lease by the "Industrial Realty Company". Polan wholly owned "Industrial", but had never held any corporate meetings or elected officers.

The question is whether Kinney could pursue Mr Polan for the debt.

Judgment

Chapman J quoted from Sanders v. Roselawn Memorial Gardens, Inc. that the "fiction" of separate legal personality,

"should be disregarded when it is urged with an intent not within its reason and purpose, and in such a way that its retention would produce injustices or inequitable consequences."

It emphasised that each case should be decided on its facts, and pointed to a number of relevant factors.

• that Industrial was not adequately capitalised (no capital had been paid in)
• no corporate formalities, such as taking minutes or electing officers, had been observed
• it appeared that the company was deliberately used to carry out transactions to benefit another of Mr Polan's companies, which had assets but would be shielded from liability

He concluded by saying,

"This corporation was no more than a shell - a transparent shell. When nothing is invested in the corporation, the corporation provides no protection to its owner; nothing in, nothing out, no protection. If Polan wishes the protection of a corporation to limit his liability, he must follow the simple formalities of maintaining the corporation. This he failed to do, and he may not relieve his circumstances by saying Kinney should have known better."

See also

• Texas Industries Indus., Inc. v. DuPuy, 227 So. 2d 265 (La. Ct. App. 1969) "Inadequate capitalization is not of itself a badge of fraud... The general rule is that an individual may incorporate his business for the sole purpose of escaping individual liability for the corporate debts."