March 19, 2019

Piercing the Corporate Veil in Mexico

By Adrián Salgado

In November 2018 the Third Collegiate Court on Civil Matters of the First Circuit published judicial decision number I.3o.C.340 C (10a.) entitled: “Corporate Veil. Justification for piercing the corporate veil.” In this decision, the Court ruled that piercing the corporate veil is justified when parties use the corporate form in an otherwise legal and valid manner for improper ends or to avoid legal obligations or liability. Accordingly,  the Court stated that the purpose of piercing the corporate veil is to avoid harm to third parties resulting from abusive or improper use of the corporate form. This can occur when parties misuse or abuse the presumption of good faith given to corporations, their shareholders and representatives, to exercise the corporation’s rights consistent with corporate social and ethical standards. It is important to emphasize that this ruling is an independent, isolated judicial decision that may not be relied on for precedential value. Nevertheless, the key elements of the decision are a culmination of numerous prior case decisions previously issued on this topic, which generally tended to protect third parties from these types of improper corporate acts.