Legal Updates

Being a sole signatory of a company is not enough to be considered as having control for the purposes of piercing the veil of incorporation

July 22, 2024
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After the controlling shareholder was declared bankrupt, the municipality sought to collect the company’s city tax debts directly from his wife, who was the sole signatory in the company, by piercing the corporate veil.

The Court rejected the municipality's contention and held that the wife did not have control over the company. When a private company has a city tax debt for a property that is not used for residences and the company has dissolved or lacks the means to pay off that debt - the municipality may collect the debt directly from the person who has control over the company. For this matter, having ‘control’ requires owning 25% of the rights to the share capital, voting capital, profits or the right to appoint a manager. Here, the wife who was not a shareholder or an officer in the company, rather due to the decline of her husband's business, agreed to assist him by performing various technical tasks in the company, and was therefore nominated as signatory. However, in practice, her authority as a signatory was limited to preparing pay checks and signing checks and all these actions were done without her exercising any discretion but strictly pursuant to the instructions given to her while she was not involved in the material aspects of running the company. Therefore, the wife does not meet the conditions required for being defined as having control over the company and cannot be required to pay the company city tax debt.

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