A Thinly-Veiled Critique of Corporate Personhood

Written by: Christian Christodoulides

Introduction

A fundamental notion in Canadian law is that a corporation is a separate legal person. This legal construct, which confers upon corporations all the rights and obligations of a natural person, plays a significant role in shaping legal accountability. While this doctrine promotes entrepreneurial risk-taking by shielding shareholders from liability, it simultaneously creates significant ethical and legal dilemmas, particularly in today’s globalized landscape.

This blog post poses the following research question: Does the doctrine of separate legal personality align with the realities of modern corporate influence and accountability?

The Origin and Prevalence of Corporate Personhood

The landmark case of Salomon v Salomon established the principle of corporate personhood. The House of Lords held that a corporation is a separate legal entity, shielding businessman Aron Salomon from personal liability for his company’s debts. The Court reasoned that investors require partial legal immunity in order to leverage the corporation as a tool for innovation. As is eloquently put in the linked article, the Court’s ruling achieved this purpose by drawing a “corporate veil” over the shareholders, creating a wall between the corporation and its investors.

Presently, the concept of separate legal personality is deeply entrenched in Canadian law. S. 15(1) of the Canada Business Corporations Act grants corporations all the rights, powers, and privileges of a natural person. Similarly, s. 45(1) codifies limited liability, ensuring that shareholders are not liable for corporate actions beyond the scope of their investment.

The Corporate Veil: An Impermeable Shield?

Case law places limitations on this notion of corporate separateness. In Kosmopoulos v Constitution Insurance Co of Canada (“Kosmopoulos”), the Supreme Court of Canada ruled that corporate separateness may be disregarded if enforcing it would lead to a result “too flagrantly opposed to justice, convenience or interests of the revenue.”

In my view, the phrase “too flagrantly opposed to justice” sets a vague threshold for piercing the corporate veil. This issue is acknowledged in Kosmopoulos, where the Court stated that regarding a company as a mere “agent” or “puppet” of its controlling shareholder or parent corporation follows no consistent principle. In a similar vein, the Court in Driving Force Inc v I Spy-Eagle Eyes, Safety Inc stated that “there is no fixed rule that a tort by a corporation always involves a concurrent tort by one of its human agents.”

This standard makes it difficult for courts to set aside corporate separateness if the impugned conduct falls short of blatant recklessness. As a result, plaintiffs may face significant barriers when seeking recourse in cases where the decisions of directors or shareholders, though not overtly reckless, substantially contribute to harmful outcomes.

Oh, the Humanity…

How human are corporations? In my view, corporations lack a fundamental quality that forms the basis for liability: decision making autonomy. Unlike natural persons, corporations do not possess a mind of their own. Their actions and decisions are driven entirely by the individuals who control them – directors and shareholders. It is these individuals who shape corporate policies, strategies, and actions, including those that may be unethical or unlawful.

Attributing the rights and obligations of a natural person to corporations creates a paradox: With exception to the most extreme cases, directors and shareholders are protected from the consequences of wrongdoing, while fully benefiting from their successes.

Impact on Real People

This paradox is particularly troubling because corporate actions can have a profound impact on the lives of real people, regardless of the intent behind those actions. For instance, a corporation might inadvertently pollute a water source by failing to upgrade aging infrastructure. While the consequences of such pollution could be devastating for local communities – affecting health, livelihoods, and the environment – the lack of deliberate intent to cause harm often means that liability is confined to the corporation itself, and not its individual directors or shareholders. This legal protection leaves affected individuals without a clear path to hold decision makers personally accountable, even when the harm caused by their decisions is significant.

As an infamous example, the Deepwater Horizon oil spill in 2010 involved a catastrophic explosion on the offshore drilling rig, operated by The British Petroleum Company (“BP”). This resulted in one of the largest environmental disasters in history, with millions of barrels of oil spilled into the Gulf of Mexico. The environmental and economic fallout was immense, devastating marine ecosystems, harming local fisheries, and disrupting the livelihoods of coastal communities.

While BP, as a corporation, faced substantial financial penalties amounting to billions of dollars in fines, cleanup costs, and settlements; its shareholders and executives were largely insulated from personal liability. The principle of corporate separateness ensured that the financial burden was borne by the corporation and its assets, and not by the individuals who made the critical decisions leading to the disaster.

Corporate Personhood: An Outdated Standard?

This issue is exacerbated when considering the dramatic evolution of corporations. When Salomon v Salomon was decided in 1897, corporations were relatively small, local entities with limited influence on global markets or societal systems. Today, corporations wield unprecedented power, often surpassing governments in economic scale and geopolitical influence, affecting economies across borders and influencing political agendas. This calls into question whether the doctrine of corporate personhood, established more than one hundred years ago, can be reconciled with the influence of modern multinational corporations.

The evolution of corporate influence has far-reaching implications, particularly in how directors and shareholders can exploit the legal personhood of corporations for unethical or harmful purposes. For instance, directors and shareholders may exploit their corporation’s legal personhood to engage in tax avoidance, shifting profits to jurisdictions with lower tax rates while operating in higher-tax regions. On top of being difficult to prove, this practice deprives governments of revenue needed to fund public goods and services. Moreover, shell corporations – entities that exist solely on paper and lack active business operations – may be used to launder money or evade taxes, as seen in high-profile scandals like the Panama Papers. In these cases, the corporate veil becomes a tool for obfuscation, rather than one of innovation.

Conclusion: Balancing Economic Growth and Corporate Accountability

It is undeniable that the doctrine of separate legal personality plays an important role in driving economic growth by encouraging risk-taking, investment, and innovation. However, these advantages should be carefully weighed against the potential for harmful corporate behaviour, as described above. Rather than advocating for the wholesale elimination of corporate personhood, I propose the introduction of judicious oversight mechanisms predicated on balancing the promotion of economic growth with the protection of human rights.

For instance, implementing additional grounds for lifting the corporate veil could deter unethical practices without necessarily compromising innovation. Likewise, creating a public registry that includes the names of the primary beneficial owners of large corporations could enhance transparency, deter obfuscation, and protect the integrity of legitimate business operations. Prudent reforms such as these have the potential to preserve the economic and innovative advantages that incorporation offers, while also addressing its potential for misuse.

The views and opinions expressed in the blogs are the views of their authors, and do not represent the views of the Faculty of Law, or the University of Manitoba. Academic Members of the University of Manitoba are entitled to academic freedom in the context of a respectful working and learning environment.

By Christian Christodoulides (B.A., M.P.A).
J.D. Candidate, 2026 – Robson Hall, Faculty of Law
University of Manitoba