Track: Undergraduate Student Paper Competition

Abstract

Limited liability is a principle where the shareholders are considered separated from the assets of the company, and their losses are only limited to the shares owned. Limited liability can result in moral hazard and irresponsible domination. To prevent such a situation, many countries have adopted the doctrine of Piercing the Corporate Veil, which makes the veil that limits legal entities with their shareholders can be torn so that this doctrine allows shareholders in certain cases to be responsible for their personal assets. In determining the applicability of Piercing the Corporate Veil, courts in the United States have developed some legal tests, namely, alter ego and instrumentality rules. However, this doctrine is not as easy and simple as it seems because its application is determined based on a case-by-case basis and the courts have great freedom to make judgments. Thus, it become generally recognized that Piercing the Corporate Veil is lost in a fog of metaphor. Due to such a reality, one of the purposes of law as stated by Gustav Radbruch (justice) is not fulfilled, where it makes third parties rarely get compensation, and does not provide a deterrent so the actions against the law of the company organs will continue. Therefore, this research will be conducted through a normative juridical research method using a statutory approach and a of comparative law approach. This paper will present comprehensive theories regarding piercing the corporate veil, as well as the case law from United States and Indonesia.