In brief
The proposed Federal Law on Liability for Abuse of Legal Personality and Corporate Veil Piercing seeks to establish a statutory framework to disregard the separate legal personality of corporate entities and their partners in exceptional cases of abuse or fraud. Its goal is to prevent the misuse of corporate structures to evade legal obligations, defraud creditors, or conceal assets, while preserving the principle of limited liability for legitimate business operations. The bill is currently pending approval by the Federal Congress.
Key takeaways
According to the proposed bill:
- Piercing the corporate veil is a last-resort, restrictive, and subsidiary measure. It only applies when there is clear and convincing evidence of abuse of the corporate structure.
- Elements for piercing the corporate veil:
- An individual or entity exercises effective control over the legal entity;
- The controller has used the legal personality in an abusive, fraudulent, simulated manner, or with intent to circumvent the law or harm third-party rights;
- Such conduct results or may result in harm to third parties or fraud against the law.
- The judge may rely on objective factors (such as: majority ownership, lack of autonomy, insufficient capitalization, repeated non-compliance) to pierce the corporate veil, but there must be evidence of abusive or fraudulent intent behind the corporate structure (e.g., incorporation specifically to evade liabilities, use as a disguise, breach of contractual good faith).
- This action may be initiated as an ancillary proceeding in the main trial, as an independent claim, or as an ancillary proceeding during the enforcement of a judgment. It may even be allowed as a precautionary measure if there are strong indications of fraud and risk.
- Consequences of piercing the corporate veil include joint and several liability of shareholders and possible nullity of simulated acts.
This bill reinforces established judicial precedents and provides clearer, more predictable rules for when piercing the corporate veil applies in Mexico, which until now has only been regulated through the activity and criteria of the Federal Courts. It confirms that this is an extraordinary remedy, reserved for cases of fraud or abuse of the corporate structure, and must be applied with caution and solid justification. Courts will require objective factors — such as ownership structure, debts, and repeated breaches — alongside evidence of fraudulent intent, all proven with clear and convincing documentation.
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Camila Curiel, Law Clerk, has contributed to this legal update.