Piercing the Corporate Veil

For over five years, Rick was the CEO of JB Guitars Inc, a corporation operating a chain of retail guitar stores. He had gained tremendous practical experience and decided to start his own business selling guitars. When he first started working at JB Guitars, Rick agreed not to carry on a competing business for two years after he ended his employment with the corporation. To avoid breaching that contract, Rick incorporated a corporation named Generation X Guitars Inc to carry on the business. He is the sole shareholder, director, and president. JB Guitars claims that the new corporation is just a way of getting around the non-competition agreement and has sued for a court order prohibiting Generation X Guitars from carrying a business competing with JB Guitars. Will JB Guitars be successful?

Required

1. What is the relevant legal issues (Under Canadian Law)?

Read and understand the facts to determine the legal questions that need to be answered.

2. Identify and discuss the applicable law relevant to the issue.

Cite the applicable law for piercing the corporate veil.

3. Apply the law to the facts and come to a conclusion or opinion.

Do not apply only common sense. Apply the law!

This is issue of Piercing the Corporate Veil under Corporations Law.

To give proper answer summary of Piercing the Corporate Veil is given in Below:

A court may pierce the corporate veil by disregarding the separate legal existence of the corporation to impose personal liability on a shareholder for a corporation's obligation. For instance, a judge may permit a creditor of a corporation to claim directly against a controlling shareholder if the corporation has insufficient assets to satisfy the creditor's claim. Disregarding the corporation in this way does not destroy its separate existence for all purposes, only for the limited purpose of granting relief to the creditor directly against the shareholder. It is very difficult to predict when a court will pierce the corporate veil, although usually there must be some kind of serious wrongdoing or unfairness or both. When a business has been incorporated to do something (or facilitate the doing of something) that would be illegal or improper for the individual shareholders to do personally, the courts have disregarded the separate existence of the corporation.