FOREIGN TRADE UNIVERSITY

FACULTY OF BUSINESS ADMINISTRATION

____***____

ENTERPRISE LAW FINAL REPORT

Topic: Piercing the Corporate Veil: A Comparative Analysis of

Legal Approaches in International Jurisdictions and the
Implications for Vietnamese Law

Student : Dang Mai Phuong

Student ID : 2113250032
Class : Anh 02 - CLCQT - K60
Instructor : Mr. Hoang Cong Anh Bao
Course : PLUE401.2
Submission : 17 October 2023

Hanoi, 2023
 TABLE OF CONTENTS
TABLE OF CONTENTS......................................................................................................... 1
I. Introduction...........................................................................................................................2
1. Topic’s Background and Significance..............................................................................2
2. Purpose............................................................................................................................. 2
3. Scope and methodology................................................................................................... 2
II. Piercing the Corporate Veil: An Overview....................................................................... 3
1. Definition......................................................................................................................... 3
2. Objectives and Implications............................................................................................. 3
III. Legal Approaches in International Jurisdictions........................................................... 4
1. United States.................................................................................................................... 4
2. United Kingdom............................................................................................................... 4
3. A Comparative Analysis of Two Jurisdictions.................................................................5
IV. Corporate Veil Piercing in Vietnamese Law and Implications...................................... 6
1. The obligations of a shareholder in a multi-owner company...........................................6
2. The parent-subsidiary company scenario......................................................................... 7
3. The obligations of owners in a single-member limited liability company.......................7
VI. Conclusion.......................................................................................................................... 8
VII. References......................................................................................................................... 9

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I. Introduction

1. Topic’s Background and Significance

Legal experts worldwide have been actively searching for solutions to tackle the
problem regarding the utilization of the 'Piercing the Corporate Veil doctrine' (PCV). The
PCV doctrine allows a court to hold the owners or directors of a corporation personally liable
for the corporation's debts or actions, even though they are protected by the principles of
limited liability and corporate legal identity. Nevertheless, applying this doctrine remains a
difficult challenge due to the need to deviate from long-established historical principles and
address substantial economic and legal concerns associated with limited liability. Despite the
absence of a robust theoretical foundation, the legal framework in Vietnam has incorporated
elements of this doctrine into various business laws over time. However, Vietnam has not yet
witnessed any legal practices implementing this doctrine with regard to the accountability of
shareholders or managers for corporate actions. This topic examines the different legal
approaches used by different countries to address the issue of piercing the corporate veil.

2. Purpose
The central aim of this report is to conduct a comprehensive analysis of "Piercing the
Corporate Veil" as it is employed across international legal jurisdictions. Our goal is to
illuminate the various strategies and methodologies that different legal systems employ to
navigate this complex matter, investigating the subtleties of how the doctrine is put into
practice, and significant legal precedents. Additionally, the report aims to discern the
potential implications and uses of this doctrine within the legal framework of Vietnam.

3. Scope and methodology

This report uses a comparative approach to study the "Piercing the Corporate Veil"
across various countries. The report examines how different nations use this doctrine by
looking at legal cases and comparing their approaches. Furthermore, this report also looks at
how this doctrine could be used in Vietnam. This report explores whether it can be adapted to
Vietnamese law and considers how economic and legal factors might affect its use. To do
this, the report uses various research methods, including examining legal cases and making
legal comparisons,

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II. Piercing the Corporate Veil: An Overview

1. Definition

Piercing the corporate veil is a legal principle that allows courts to hold the
individuals who own and run a company personally responsible for the company's actions or
debts. This is typically done in exceptional situations, such as when the company is used for
illegal or fraudulent purposes.

The corporate veil is a legal concept that treats a corporation as a separate legal entity
from the individuals who own and run it. This means that the owners and managers of a
corporation are generally not held personally responsible for the company's debts or
liabilities. However, the corporate veil can be pierced in certain circumstances, such as when
the owners or managers use the company to commit fraud or other wrongdoing.

There are a number of reasons why courts might pierce the corporate veil. For
example, a court might pierce the veil to prevent fraud, to protect creditors, or to promote
justice. Courts will also consider the specific circumstances of each case when deciding
whether or not to pierce the veil.

2. Objectives and Implications

Piercing the corporate veil is a legal doctrine that allows courts to hold business
owners and shareholders personally liable for the debts and actions of a corporation. This is
necessary in some cases to protect creditors and other stakeholders. First, PCV is the
protection of stakeholders because it enables these stakeholders to take legal action against
the people behind the corporation when the corporation fails to fulfill its obligations. It
ensures that those who experience losses due to corporate actions have a way to hold the
responsible parties answerable. Secondly, PCV is a preservation of fairness since it prevents
shareholders from unfairly benefiting at the cost of others by taking advantage of limited
liability protection. Lastly, PCV represents an evolution in corporate law, influenced by
judicial rulings and legal principles established in cases related to piercing the corporate veil.
This continuous development ensures that corporate legal frameworks remain effective and
relevant to today’s changing demands.

Piercing the corporate veil is a rare and difficult concept, as courts generally respect
the principle of limited liability, which protects the personal assets of shareholders and

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directors from creditors and liability lawsuits. First, piercing the corporate veil is a legal tool
that can be used to hold corporate actors personally liable for failing to comply with certain
statutory schemes. This is done to ensure that the goals of these programs are met and that all
workers are protected. There are also cases where it is necessary to respect the corporate
structure in order to comply with certain state or federal laws. In addition, courts may pierce
the corporate veil to hold shareholders personally liable for a corporation's debts if the
shareholders have misled others into believing that the debts are their personal responsibility.
This is known as constructive fraud, and it does not require actual deception. Courts will use
this remedy to prevent shareholders from using the corporate form to shield themselves from
personal liability when they have misled others into believing that they are personally liable.

III. Legal Approaches in International Jurisdictions

1. United States

Professor Berle's enterprise entity theory was one of the earliest theories of piercing
the corporate veil in America. It argued that parent companies should be liable for the debts
and actions of their subsidiaries. This was to prevent shareholders from avoiding liability by
forming multiple corporations. However, courts rejected Berle's theory and instead focused
on specific factors such as undercapitalization and the mixing of corporate affairs. Other
theories, such as the alter ego and instrumentality doctrines, focused on the relationship
between the corporation and its shareholders. These doctrines allowed courts to hold
shareholders personally liable if the corporation was used as a tool to commit fraud or other
wrongdoing.

The alter ego and instrumentality doctrines are still in use today by most US courts.
However, there is little distinction between the two doctrines, as both require that the
corporation be controlled by its shareholders to the point where it is unable to function
independently. In other words, courts in the United States have developed a number of
theories for piercing the corporate veil, which allow them to hold shareholders personally
liable for the debts and actions of a corporation.

2. United Kingdom

UK courts are generally reluctant to pierce the corporate veil, protecting the principle
of limited liability. There is no coherent analytical framework for piercing the veil in the UK,

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and courts have used a variety of factors to decide cases, including agency, trusts, fraud,
group enterprises, tort, enemy status, taxation, and the Companies Act. The most common
ground for piercing the veil is agency. If the court finds that a corporation is merely an agent
of its shareholders, then it may pierce the veil and hold the shareholders personally liable for
the corporation's actions. However, the court is unlikely to pierce the veil even if it is
necessary to prevent injustice, unless it can establish an agency relationship.

Fraud is the most predictable ground for piercing the corporate veil in the UK, but it is
still difficult to prove. This is because fraud requires evidence of both misrepresentation and
the defendant's intent to deceive. Proving intent can be very challenging, especially in cases
of piercing the corporate veil. It can be very difficult to prove intent in cases where someone
is trying to pierce the corporate veil. UK courts are also reluctant to pierce the veil on the
basis of tort law.

3. A Comparative Analysis of Two Jurisdictions

England and the United States are two common-law countries with different
approaches to piercing the corporate veil. In the English legal landscape, the path to
veil-piercing may take a similar course because, prior to the Prest v. Petrodel case, both
jurisdictions had generally maintained a cautious stance on this doctrine. Lord Sumption's
approach has substantially limited the applicability of the veil-piercing doctrine. It's
noteworthy that both countries share a strong mercantilist perspective, which may explain the
reluctance to disregard corporate identity, as evident in the scarcity of veil-piercing cases. In
these jurisdictions, judicial policy leans towards ensuring legal certainty for businesses.

On the other hand, in the United States, there is notably more flexibility in permitting
veil-piercing, even though courts emphasize that such actions should be undertaken sparingly.
The US courts rely on two key doctrines: the agency doctrine and the instrumentality/alter
ego doctrine. These doctrines provide the courts with tests that can be applied to various
types of cases involving piercing the corporate veil. The author argues that this approach is
more efficient and predictable than the unprincipled approach used in the UK. However, this
approach has its limitations.

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IV. Corporate Veil Piercing in Vietnamese Law and Implications

There are two main perspectives on the scope of the piercing the corporate veil
doctrine in Vietnam.

The first perspective of PCV in Vietnamese law is stipulated in two provisions related
to the obligations of members or shareholders in Limited Liability Companies (LLCs) and
Joint Stock Companies (JSCs): Article 42 and 80 of the Enterprise Law. According to this
approach, PCV is only applicable to LLCs with two or more members and state-owned
enterprises (meaning single-member LLCs with 100% state capital). This excludes the
application of PCV in cases where single-member LLCs with non-state capital, which, in
practice, should be subject to the most rigorous PCV due to their prevalence in fraudulent
activities in Vietnam, as well as JSCs. This differs from the PCV theory's subjective scope,
which applies to all legal entities and their contributors/managers who enjoy limited liability.

The second view of PCV is scattered throughout various provisions of enterprise law,
typically in the form of "shareholders/managers must assume joint liability and/or
compensate for damages" due to their actions. In Vietnam, the courts can only fully apply the
PCV theory in cases where a shareholder exercises complete control over the company to
commit wrongdoing, based on Article 66.1 (for single-member LLC owners), Article 147 (in
the case of parent-subsidiary companies), Article 42.5 (for members of LLCs with two or
more members), and Article 80.5 (for shareholders of joint-stock companies) of the 2005
Enterprise Law.

1. The obligations of a shareholder in a multi-owner company

Article 42 and Article 80 of the Vietnamese Enterprise Law hold individuals

personally liable for a company's debts if they act on behalf of the company and engage in
certain activities, such as violating the law or engaging in transactions that harm the company
or others. By stipulating the element of "on behalf of the company," the law implicitly
understands that the members or shareholders of the company are also legal representatives
or representatives of the company by authorization. Therefore, it must be understood that
members or shareholders who act "on behalf of the company" under Article 42 and 80 of the
Enterprise Law have engaged in transactions within their respective authorities. This applies
to individuals who have managerial authority and are in charge of company management,
such as legal representatives, authorized representatives, the Chairman of the Board of

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Directors, General Director, or Director. The law provides a very broad scope of application,
requiring capital contributors to exercise caution when carrying out business management
activities, thereby reducing the motivation to exploit the legal personality of the company for
undue gain. In other words, if an individual who has managerial authority acts on behalf of
the company to engage in certain wrongdoing, they can be held personally liable for the
company's debts. This applies to all companies, including publicly traded companies.

2. The parent-subsidiary company scenario.

Vietnamese law also allows for piercing the corporate veil in the parent-subsidiary
company model when the parent company fails to fulfill its obligations to the subsidiary. The
law provides comprehensive and detailed regulations on how and when to pierce the veil in
this context, as well as the legal consequences.

Specifically, Article 147.3 of the Vietnamese Enterprise Law prohibits the parent
company from engaging in activities that are contrary to ordinary business practices or using
the subsidiary for non-profitable transactions to seek benefits elsewhere. These provisions
allow the courts to apply piercing the veil more flexibly in the parent-subsidiary context. This
is a significant protection for creditors and other stakeholders of subsidiaries. It helps to deter
parent companies from using their subsidiaries for improper purposes.

3. The obligations of owners in a single-member limited liability company

Vietnamese law restricts the rights of a single-member LLC owner, including the right
to withdraw a portion or the entirety of their investment in the company through unlawful
means. If a single-member LLC owner violates this restriction, they may be held personally
liable for the company's debts and obligations. This is an important protection for creditors
and other stakeholders, as it ensures that single-member LLC owners cannot simply abandon
their companies and leave their debts unpaid. It also helps to deter single-member LLC
owners from using their companies for fraudulent or other illegal purposes.

Piercing the corporate veil (PCV) is a relatively new concept in Vietnamese law, and
the regulations are not yet fully developed. Piercing the corporate veil (PCV) is a relatively
new legal concept in Vietnam, and the law on PCV is not yet fully developed. As a result,
state authorities often use alternative approaches to address PCV issues. However, these

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alternative approaches may not have a legal basis and may violate other fundamental legal
principles. This makes the law less predictable and foreseeable.

It is important to note that the law on PCV is complex and there is no one-size-fits-all
approach. The courts will consider a variety of factors when deciding whether or not to pierce
the corporate veil in a particular case. However, the fact that the Vietnamese legal system is
still developing in terms of PCV can be a challenge for businesses and other stakeholders. It
is important to seek legal advice if you are involved in a case where PCV may be an issue.

VI. Conclusion

The theory of piercing the corporate veil (PCV) was developed in response to the
needs of those who have been harmed by the shortcomings of the law. PCV has been adopted
by many legal systems, including the United States, and is increasingly being recognized by
other countries, including Vietnam, as a way to improve their legal frameworks. However,
some courts are still hesitant to apply PCV, possibly due to the conflict between this theory
and two fundamental principles in corporate law: limited liability and legal personality.

PCV is a relatively new concept in Vietnam. The current legal provisions are
comprehensive enough to allow courts to apply PCV, but there are no specific, detailed
guidelines for its application. To date, there has been no case in Vietnam where the courts
have applied PCV based on relevant laws. However, it is important to establish a clearer
understanding of PCV provisions in Vietnam, especially in the context of increasing foreign
investment.

There is a need for significant investment in researching and improving the PCV
mechanism in Vietnam. Additionally, specific and detailed guidance for existing legal
provisions, such as clarifying the cases provided in Article 42 and Article 80 of the 2005
Enterprise Law, is crucial. Furthermore, legal scholars need to develop and refine cases that
Vietnamese law has not addressed. Vietnam can benefit greatly from the experiences of
countries that have already developed a PCV mechanism.

VII. References

● Piercing the corporate veil (no date) Legal Information Institute. Available at:
https://www.law.cornell.edu/wex/piercing_the_corporate_veil (Accessed: 16 October
2023).

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● (1995) Piercing the corporate veil in American and German law - liability of ... Available
at:
https://digitalcommons.law.utulsa.edu/cgi/viewcontent.cgi?article=1166&context=tjcil&ht
tpsredir=1 (Accessed: 15 October 2023)
● (2019) Piercing the corporate veil: Historical, Theoretical & Comparative ... Available at:
https://www.researchgate.net/profile/Jiangyu-Wang-2/publication/328469896_Piercing_th
e_Corporate_Veil_Historical_Theoretical_and_Comparative_Perspectives/links/5d971e6f
458515c1d3927ea5/Piercing-the-Corporate-Veil-Historical-Theoretical-and-Comparative-
Perspectives.pdf?origin=publication_detail (Accessed: 15 October 2023).
● Participation, E. (1986) Insolvency act 1986, Legislation.gov.uk. Available at:
https://www.legislation.gov.uk/ukpga/1986/45/section/214 (Accessed: 17 October 2023).
● (2011) Approach of the UK court in piercing corporate veil - researchgate. Available at:
https://www.researchgate.net/publication/272526625_Approach_of_the_UK_Court_in_Pi
ercing_Corporate_Veil (Accessed: 15 October 2023).
● Nguyễn Lê Duy Hậu (2010) – Khóa luận tốt nghiệp: “Học thuyết “Piercing the corporate
veil” trong pháp luật các nước: so sánh với pháp luật Việt Nam” - Người hướng dẫn: Luật
sư – Thạc sĩ luật học Nguyễn Ngọc Bích - Hồ Chí Minh.
● Cơ Chế ‘Xuyên Qua màn che công ty’ Trong Pháp Luật Một SỐ NƯỚC VÀ ở Việt Nam
(no date) Tạp chí nghiên cứu lập pháp. Available at:
http://www.lapphap.vn/Pages/tintuc/tinchitiet.aspx?tintucid=207883 (Accessed: 17
October 2023).
● Law on enterprises 2020 (2022) Công ty luật và luật sư uy tín tại Việt Nam. Available at:
https://lawfirmvietnam.com/en/law-on-enterprises-2020/#:~:text=This%20Law%20provid
es%20for%20establishment,sole%20proprietorships%3B%20groups%20of%20companies
. (Accessed: 17 October 2023).
● (No date) Enterprise law (2005). Available at:
https://vinhphuc.eregulations.org/media/Enterprise%20law%202005_EN.PDF (Accessed:
16 October 2023).
● Alanazi, B.M.A. (2020) Piercing the corporate veil in various jurisdictions – principled or
unprincipled?, Virtus InterPress. Available at:
https://virtusinterpress.org/Piercing-the-corporate-veil-in-various-jurisdictions-Principled-
or-unprincipled.html?fbclid=IwAR1FI20VXK6DqivvoWZhpB30aMtvR8aQwQvCz-TNv
2Ajx9Ueze2gUcnzDDw (Accessed: 17 October 2023).