Kinney Shoe Corp. v. Polan
Courts have long recognized that a corporation is an entity, separate and distinct from its officers and stockholders, and the individual stockholders are not responsible for the debts of the corporation.
In the following case, a Federal court lays out its approach to the question of whether a court should depart from the limited liability norm and “pierce the corporate veil” thus making stockholders liable for the debts of the corporation. The approach taken by the Federal court here differs only slightly from the approach to piercing taken by various state courts, including Walkovszky.
Central to a court's inquiry will be whether the stockholders treated the corporation as a separate entity with respect for the formalities due to a separate entity such that a court should also respect the corporation's limited liability.
Although the court in this case provides us with a convenient “test” it is worth remembering that piercing the corporate veil is an equitable remedy, therefore courts can – at times – appear to be inconsistent in their application of these tests. Success will usually require highly idiosyncratic facts and very sympathetic plaintiffs. In the most general terms, piercing the corporate veil is never going to be a court's first instinct.
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