Limited Liability and Piercing the Corporate Veil: A Comparative Evaluation of U.S. and Saudi Laws

Abstract

This dissertation comparatively evaluates legal doctrine on piercing the corporate veil (PCV) under the laws of the United States and Saudi Arabia, thereby comparing rules arising under the common law and written codes, respectively. PCV is an exception to the doctrine of limited liability, a key attribute of corporate entities, under which shareholders and managers are protected from a corporation’s debts. When courts pierce the corporate veil (a concept known as “joint liability” under recent Saudi law), they expose shareholders to a corporation’s liabilities. PCV recognizes that shareholders and managers may act fraudulently or otherwise exploit the protections they receive under limited liability, harming creditors. This dissertation examines the application of the PCV doctrine in the United States and Saudi Arabia and explores the differences in how and why the doctrine is applied in these two jurisdictions. The absence of specified factors for piercing largely affects the outcomes of piercing willingness in Saudi. For instance, SCL 2022 does not specify fraud as a factor for PCV, a significant omission that necessitates reform, especially given that fraud is a clear circumstance where the benefits of limited liability should not apply. On the other hand, courts in the U.S. provide clear guidance on factors such as fraud and misrepresentation, outlining the circumstances under which they will apply PCV, although U.S. law lacks coherence on veil piercing. Furthermore, the study suggests broadening the circumstances under which Saudi courts may pierce the corporate veil for unlisted joint stock companies (UJSCs), the Saudi analog of close corporations. Drawing from U.S. piercing doctrine, the study proposes the inclusion of fraud, undercapitalization, and misrepresentation as factors as justifications for PCV. The dissertation advocates that PCV provisions need to be effectively put into practice by Saudi courts, stressing the need for a balanced approach that respects limited liability while allowing for necessary veil piercing under certain circumstances.