223 N.E.2d 6 (N.Y. 1966)
Walkovszky v. Carlton is a pivotal case in corporate law that addresses the doctrine of piercing the corporate veil.
Under what circumstances can a court pierce the corporate veil to hold shareholders personally liable for corporate debts?
The legal principle established in Walkovszky v. Carlton is that courts may pierce the corporate veil when a corporation is merely an alter ego of its shareholders, and when such a disregard for the corporate form is necessary to prevent injustice. Factors considered include undercapitalization, failure to follow corporate formalities, and the degree of control exerted by shareholders over the corporation.
The New York Court of Appeals affirmed the lower court's decision, holding that Walkovszky could not pierce the corporate veil to hold Carlton personally liable. The court found that there was insufficient evidence to demonstrate that the corporations were mere alter egos of Carlton or that they were operated in a manner that justified disregarding their separate legal identities.
Walkovszky v. Carlton is a landmark case in corporate law that has had a lasting impact on the doctrine of piercing the corporate veil. It serves as a critical reference point for understanding the limits of shareholder liability and the circumstances under which courts may intervene to prevent injustice. The case has been cited in numerous subsequent decisions, reinforcing the principle that the corporate form should be respected unless there is compelling evidence of misuse.