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Piercing the Corporate Veil
The concept of the corporate veil separates a corporation as a legal person from its shareholders. Thereby the shareholders are protected from being personally liable for the company’s actions, debts and other obligations.
Although the Cyprus Company Law adheres to this principle, the corporate veil can be lifted on a court’s order under exceptional circumstances, in order to grant remedies against the shareholders of a company, when usually actions should have been taken only against the company.
As it has been established by the Cyprus case law, the corporate veil may be pierced. However, several criteria must be fulfilled.
- There must be evidence of impropriety.
- Furthermore, it must be proved that the legal entity was incorporated and/or used for avoidance, concealment of fraudulent actions etc.
- The intentions of the owners and/or controllers must be examined, as ownership and control on their own are not enough for the piercing of the corporate veil.
Generally speaking, the corporate veil can be lifted in Cyprus under exceptional circumstances and the company’s liabilities can thereby be extended to the shareholders. However, the cases are rare, and it must be first proved that the corporate structure was created and/or used as a façade for illegal/ and fraudulent purposes.
If you require legal advice on the mechanism of lifting the corporate veil or on Cyprus Company Law please get in touch with our lawyers.