When can a court pierce the corporate veil and hold a director personally liable in Ontario?

Piercing the corporate veil — holding a director or shareholder personally responsible for the corporation's debts or actions — is an exceptional remedy in Ontario. Courts treat the corporation as a separate legal person from its shareholders and directors, and they will not lightly set that distinction aside. The principle of separate legal personality is foundational to corporate law.

Ontario courts have identified limited circumstances where the veil may be pierced: when the corporation is used as an instrument of fraud or to avoid existing legal obligations, when the corporation is a complete alter ego with no real separate existence from the individual controlling it, or where a statute expressly imposes personal liability. Mere control of a corporation, poor governance, or the corporation's insolvency are not enough on their own.

What protects directors and shareholders is maintaining the corporate formalities: keeping corporate and personal finances separate, documenting decisions through proper resolutions, avoiding use of the corporation to deceive creditors, and ensuring the corporation has adequate capitalization for its activities. A director who commingles personal and corporate funds, pays personal bills through the corporation, or uses the corporate form to defraud a specific creditor is far more vulnerable to a veil-piercing argument. Regular legal reviews of corporate governance can identify and correct practices that create risk.