Common law permits the piercing of the corporate veil and acknowledges the alter ego theory. In Mexico, corporate law remains ambiguous on this matter. For years, trial attorneys, academics, and judges have held varying opinions on the issue. Over the past decade, Federal Circuit Courts have begun to establish precedents favoring the piercing of the corporate veil. However, it is only recently that the Mexican Supreme Court has addressed this issue, as earlier cases had not been brought before the high court.
The Court recently published two precedents that allow the piercing of the corporate veil under certain conditions. The rulings also address taking such action as a precautionary measure in commercial lawsuits.
Case law precedents are published as follows:
Digital registry number 2029944. CORPORATE VEIL. IT SHOULD BE LIFTED AS AN EXCEPTIONAL MEASURE WHEN IT IS PROVEN THAT IT IS USED TO DEFRAUD THIRD PARTIES.
Digital registry number 2029943. CORPORATE. AS A GENERAL RULE, ITS LIFTING CANNOT BE ORDERED AS A PRECAUTIONARY MEASURE IN A PRELIMINARY PROCEEDING.
What is the corporate veil?
The corporate veil is a legal fiction that offers protection to shareholders and is an integral aspect of any company. When individuals incorporate a commercial entity that meets all legal requirements, the company is deemed to exist as a separate legal entity with its own autonomy and independence. The principle of separating the corporate legal entity from its shareholders ensures that, under ordinary conditions, the actions of the entity do not impact the legal status of its owners, partners, or representatives.
The corporate veil concept was created to limit individuals' liability to the extent of their financial contribution to the company. Piercing the corporate veil refers to disregarding the legal personality of a company when the entity has acted unlawfully to the detriment of third parties. In Mexico, the primary law governing the incorporation of companies is the General Law of Commercial Companies which provides that:
Commercial companies have a legal identity distinct from that of their partners. (Article 2nd).
Creditors of a specific shareholder can enforce claims on the profits earned by that partner from the partnership, but not on the assets of the partnership. (Article 23rd).
As corporations grew, their activities became more complex, and some misused the corporate veil to evade responsibility. To counter this, legal measures were introduced to hold shareholders or representatives accountable for illegal activities, fraud, or breaches, leading to the concept of piercing the corporate veil.
Piercing the corporate veil allows parties to:
Disregard the partnership as a distinct legal entity.
Remove the liability protection for the partners within the partnership.
New case law argued before Mexico's Supreme Court.
In February 2025, the Court examined two interconnected topics about piercing the corporate veil. One topic was identified as the principal issue, while the other was considered an accessory issue. In summary, the court concluded that:
The corporate veil must be pierced when used unlawfully or to defraud third parties. As a restrictive measure, it should be considered exceptional and applied with prudence, clear and robust justification, and reliable evidence.
Generally, corporate veil piercing is not permissible in a preliminary injunction proceeding.
Supreme Court case opinions.
In the cases, the Supreme court argued the following:
The Supreme Court held that a key principle of corporate law is the separation of assets, meaning the company's assets and liabilities are distinct from those of its partners. The Court concluded that this separation ensures that the corporation's members are not personally liable for the company's debts beyond their capital contributions. If the company lacks solvency, members are only responsible up to the amount they have invested.
The court found no clear provision for piercing the corporate veil or disregarding a company's legal identity. In specific circumstances, the principle of piercing the corporate veil may be invoked as an extraordinary measure. This action is based on good faith principles, preventing abuse of rights, and avoiding legal fraud.
The exceptional application is intended to prevent the abusive use of a company's legal identity for the purpose of evading obligations or legal duties. By disregarding the separation of assets of the new entity, the aim is to determine the genuine social and economic identity of the company. This process clarifies the company's overall objectives or those specific to a particular business venture.
The Supreme Court held that Mexican law includes mechanisms with effects similar to piercing the corporate veil. These include joint and several liability (Article 2 of the General Law of Commercial Companies), the controlling beneficiary provision (Article 3, Section III, of the Federal Law for the Prevention and Identification of Operations with Illicit Proceeds), and presumptions of actions in fraud of creditors (Article 117, Sections II, III, and IV of the Law of Commercial Bankruptcy).
As it is a restrictive measure that contravenes the guarantee of legal certainty for the commercial company, its partners, and potentially other companies within its corporate group, piercing the corporate veil must be regarded as an exceptional action, utilized restrictively, and applied subsidiarily. Therefore, it should be executed with due caution and sufficient justification to set aside the principles underpinning company regulation.
The Court determined that piercing the corporate veil requires consideration of both objective and subjective elements. Objective factors include the company's incorporation, structure, governance, and any debt or obligation breaches. Subjective elements involve the context where the company was incorporated with the intent to deceive third parties or where the corporate veil is used to misrepresent actions or commit fraud against third parties.
Conclusions.
The recent cases decided by the Mexican Supreme Court, along with an accumulation of rulings from Federal Circuit Courts, form the foundation for case law direction regarding the abuse of legal personality and the separation of assets between partners and the company. In contemporary practice, it is imperative for corporate lawyers to ensure that corporations adhere to corporate regulations, as failure to do so may result in the invocation of the corporate veil doctrine.
If you have any questions, please contact Jorge E. de Hoyos Walther, Chair of our litigation practice group (Jorge.dehoyos@dha.mx) or Carlos de Hoyos Walther Chair of our Corporate practice group (carlos.dehoyos@dha.mx)
This note is for informational purposes only and does not constitute legal advice.
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