The legal framework recognizes corporations as legal entities distinct and independent from the individuals who comprise them, enabling them to:

• Acquire rights;
• Assume obligations; and
• Be liable to third parties with their own assets.

This separation of assets constitutes one of the principal incentives for business and commercial activity, as it provides legal certainty both to shareholders and to those who contract with the legal entity, within the structures and legal forms available in each jurisdiction, while limiting the liability of shareholders, partners, and management for claims against the corporate entity.

However, the protection or limitation of liability afforded by the corporate structure is not absolute. When a corporate structure is misused to conceal unlawful conduct, exceptional legal mechanisms may allow the separation between the company’s assets and those of its shareholders to be disregarded. One such mechanism is known as piercing the corporate veil.

In Mexico, piercing the corporate veil is not expressly regulated by a specific statute; rather, its development has been primarily doctrinal and jurisprudential. The Supreme Court of Justice of the Nation (Suprema Corte de Justicia de la Nación) has progressively defined its scope, establishing that its application must be restrictive, exceptional, and fully justified.

What Is the Corporate Veil?

The corporate veil refers to the legal protection arising from the recognition of a company’s separate corporate structure, which allows its assets and obligations to be distinguished from those of its partners or shareholders.

Its principal effects include:

• The limitation of liability applicable to certain corporate entities with respect to obligations assumed by the company; and
• As a general rule, corporate obligations are satisfied by the company's assets rather than with the personal assets of its shareholders or partners.

However, the corporate structure was not intended to serve as a mechanism for engaging in unlawful or fraudulent conduct. Therefore, when a company is used merely as a legal façade to conceal the true intentions of its members or to cause harm to third parties, it may be appropriate to temporarily disregard the separation between the company’s assets and those of its members.

Piercing the Corporate Veil as an Exceptional Remedy.

The First Chamber of the Mexican Supreme Court of Justice has established that piercing the corporate veil is an exceptional measure that cannot be used to automatically hold shareholders liable for corporate debts or, as a general rule, be ordered as a precautionary measure. Its application requires the court to examine the specific circumstances of each case and assess the evidence demonstrating an abusive or fraudulent use of the corporate structure before disregarding the separation between the company and its shareholders.

Some circumstances that may warrant piercing the corporate veil include:

• The use of commercial companies to conceal the true assets of their shareholders or partners;
• The simulation of legal acts through the interposition of legal entities;
• The commingling of assets between the company and its members;
• The use of corporate structures to cause harm to creditors or bona fide third parties; and
• The use of a corporate structure to circumvent compliance with mandatory legal provisions.

It should be emphasized that none of these circumstances operate automatically. Mere breach of contract, corporate insolvency, or the existence of outstanding debts is not, in and of itself, sufficient to justify piercing the corporate veil.

Conversely, the party seeking the application of this doctrine bears the burden of proving the existence of abuse or fraud committed through the use of the legal entity.

Practical Considerations for Commercial Companies.

The existence of the doctrine of piercing the corporate veil does not mean that the principle of limited liability has disappeared from the Mexican corporate legal system. On the contrary, limited liability remains the general rule and one of the principal attributes of commercial companies.

Nevertheless, this doctrine serves as an important reminder of the need to implement sound corporate governance and regulatory compliance practices.

Adherence to these practices not only enhances the legal certainty of business operations but also significantly reduces the risk of the corporate structure being challenged in court.

Early stage, discovery of practices that may compromise the separation between the assets of the company and those of its partners or shareholders. Proper corporate structuring, adequate documentation of transactions, and compliance with corporate formalities help strengthen the company’s legal and financial independence.

Likewise, a preventive legal review can identify potential risks arising from the company’s operations and corporate governance, facilitate the implementation of corrective measures, and reduce the likelihood that certain conduct may be regarded as an abusive use of the corporate structure.