What does "piercing the corporate veil" mean?

The concept of "piercing the corporate veil" refers to the legal action taken to hold shareholders personally liable for the debts and obligations of a corporation. Typically, a corporation is considered a separate legal entity that protects its shareholders from personal liability regarding the company's debts. However, in certain circumstances—such as when the corporation has been used to perpetrate fraud, when there is insufficient capitalization, or when corporate formalities are not observed—a court may decide to disregard this separation.

This legal move allows the court to look beyond the corporation's existence and impose liability on the shareholders. This principle is crucial in preventing individuals from misusing the corporate form to escape accountability. Thus, the correct choice highlights the essence of this legal doctrine, which aims to protect against abuse of the corporate structure by making shareholders liable under specific conditions.