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generally people will incorporate their business so as to limit their personal liability. As corporations are considered separate legal entities from the shareholders, incorporation ensures in most cases that potential losses (which may be attributable to individuals) become limited to what has been previously invested. These parties are protected by what is known as the “corporate veil”. The million dollar question therefore is… “How well are they actually protected?”

Unfortunately, individuals are not completely protected. Recent case law seems to suggest that there are situations where the corporate veil is insufficient to protect the individual shareholders and in certain circumstances the directors and officers as well. The personal assets of these individuals can become fair game in the wake of a dispute.

This is not to say that it is a simple matter for a court to pierce the corporate veil – the threshold continues to be a high one. However, it is important for those individuals relying on corporations to protect them from increased personal liability to be aware of some of the dangers and risks of their position. These individuals should also be mindful that this protection is anything but failsafe. Here are some scenarios where courts have ruled that individuals would not enjoy the protection usually provided by the corporation’s separate legal status:

* When shareholders do not treat corporations as separate entities from themselves and merely use it as an “alter-ego”, “puppet”, “conduit” or an agent of themselves (whether in an effort to deceive another party as to who they are actually dealing with, or for other improper purposes). In this scenario, the courts tend to view the corporation as a sham or a “cloak” for the shareholder, and recognize that the debts and liabilities of the corporation are actually those of the shareholder. In such cases, corporate formalities such as annual filings, meetings, and separate accounting records are often disregarded.

* When the shareholders have used the corporation in such a way so as to commit any fraudulent activities, the courts will not allow the shareholders to hide behind the corporation’s separate legal status. A corporation engaging in conduct “akin to fraud” will warrant a piercing of the corporate veil. This will occur when a corporation is being controlled and used by its shareholders (or directors and officers) as a shield for fraudulent or improper conduct, whether or not the corporation was originally legitimate. The conduct need not actually be fraudulent, it would be sufficient for the conduct to be merely “akin” to fraud.

* Where piercing the corporate veil will serve to link affiliated companies with a parent, subsidiary or otherwise affiliated corporation. This will occur in circumstances where one company is acting as nothing more than a “puppet” or agent of another (not unlike the situation noted above, however, in this circumstance, the “puppet master” is another corporation rather than an individual). Such an inquiry would turn on issues such as where the profits were going, which company was in control, who was truly making the decisions, etc. The corporation’s separate legal status will not be lifted to expose the individuals to personal liability in every (or even many) situations of a parent and subsidiary corporation, rather, depending on the circumstances, the separate legal entity of an affiliated corporation will not bar the corporate veil from being lifted when a court deems it to be necessary.

* Where it is in the interest of justice to pierce the corporate veil due to policy reasons. The various policy reasons a court may use as justification are potentially limitless and may relate to such areas as matrimonial disputes, tax or tortious acts committed by an employee of the corporation, just to name a few. One relevant example in Ontario was a matrimonial case (Arsenault v. Arsenault ((1998) OJ no. 1423)) where a husband was the sole shareholder of a corporation. The court was suspicious of how the gentleman was controlling the corporation after the separation from his wife and before the resolution of their financial issues. It was believed that he was attempting to protect certain assets from being applied to support payments that he would be forced to pay to his wife. To avoid financial injustice for the wife, the court found it to be appropriate to look beyond the incorporated status of the company and recognize that the assets in question truly belonged to the husband. The court concluded that “…in the end, although a business person is entitled to create corporate structures and relationships for valid business, tax and other reasons, the law must be vigilant to ensure that permissible corporate arrangements do not work (towards) an injustice…In appropriate cases, piercing the corporate veil…may be an essential mechanism…”

Beyond actually piercing the corporate veil, there are additional circumstances where directors and shareholders can be held personally liable for various corporate acts (or omissions) such as unpaid wages to employees and issuing shares without receiving payment. A thorough discussion of the additional considerations falls beyond the scope of this article, but suffice it to say that there are too many potential pitfalls in the business world to proceed without seeking the appropriate guidance and advice.

Whether or not a corporate veil would be pierced for a specific purpose or policy reason will depend heavily on the facts and circumstances of the particular case. As a prudent shareholder/owner, one must ensure that the dealings of the corporation are legitimate and that the proper steps are being taken to maintain the corporation’s good standing. If there is any doubt or concern, it is vital to consult with a lawyer when evaluating whether you are at risk of suffering any personal liability, as well as how to carry on with your business. The illusion that too many people are misled to believe is that you are entirely protected as an individual when you incorporate your business. Do not be fooled – protect yourself as best as you can.

Jordan S. Halpern is an associate lawyer with BrazeauSeller.LLP. He practices in the areas of corporate/commercial transactions as well as commercial and residential real estate.

23 July, 2009 – Kiev – The research “Central and Eastern Europe IT Outsourcing Review 2008” provides an evidence of the rapid development of IT outsourcing services market in the Central and Eastern Europe. The CEE cluster becomes the real player on the global outsourcing market. The clients are getting more interested in the “nearshoring” to the CEE region than  in the offshoring to India or China.  The customers become more sophisticated in their business relationships. There has been a shift from simple cost savings as a motivation to valuing the experience of outsourcing services providers and efficiency of cooperation between the client and provider teams. The advantages of the CEE countries such as cultural compatibility with Europe and North America, technical and business experience are of great value for the clients.

One of the main objectives of the research conducted by the Central and Eastern European Outsourcing Association (CEEOA) with the support of Council of European Professional Informatics Societies (CEPIS) is to provide the holistic view on the potential of the CEE region as a global cluster for provision of nearshore IT outsourcing for the Western European countries and for offshore IT outsourcing for the North American market.

“CEE IT Outsourcing Review” is conducted for the second time.  The 2007 research report “Central and Eastern Europe IT Outsourcing Review 2007″ indicated that there was a great interest from the clients consuming outsourcing services and research companies.  Following positive feedback for the 2007 Report, the CEEOA decided to commission an annual review on “CEE IT Outsourcing Review”, resulting in this 2008 Report. “CEE IT Outsourcing Review 2008” was conducted during January to July 2009. The national IT and outsourcing associations, largest outsourcing companies, and independent experts were invited as respondents.  The Ukrainian software development company NET Technology Center WEB100 (http://www.web100.com.ua), who provide offshore outsourcing services and deals with the development of IT solutions for B2B communications and business solutions based on Social Media approaches, sponsored the research.

The research examines key development indicators of the IT outsourcing market in the 16 countries of the Central and Eastern Europe region including market value, number of professionals, number of IT companies providing outsourcing services and market rates.

“CEE IT Outsourcing Review” includes the detailed country profiles, experts estimations on the outsourcing market development during the recession period, their opinion on new tendencies and forecasts for the market recovery, profiles of the leading outsourcing companies in the region.

Victor Maznyuk, President of Ukrainian Hi-Tech Initiative, one of the CEEOA founders, noted,

“Outsourcing industry in the Central and Eastern Europe does not suffer significantly during the financial crisis. At the outset of 2009 there was insignificant number of the outsourcing companies closures.  The outsourcing industry always expected from the outsourcing players  to meet the client requirements quickly and to control the expenses. Having a great experience of the development on the competitive market of outsourcing services provision, the Eastern European companies learned how to work successfully during the recession period without  taking drastic measures and significant business changes.

As a whole, the crisis produced the effect of improvement in the industry. The number of IT specialists slightly increased, their salary and rental fee underwent insignificant drop. This allowed companies to reduce the cost of services and to be confident during the recession period. Without any doubt I can claim that outsourcing industry is ready for the increase of provided services value in view of the forthcoming economic recovery.”

The official version of the research “Central and Eastern Europe IT Outsourcing Review 2008” is available at the information portal ITONews.eu (http://www.itonews.eu) and at the CEEOA website.

About CEEOA

Central and Eastern European Outsourcing Association (CEEOA) (www.ceeoa.org) was founded in 2008.  The members of the association are the leading national IT and Outsourcing associations from the Central and Eastern Europe, among them Baltic Outsourcing Association (BOA), Ukrainian HI-TECH Initiative, Hungarian Service Industry and Outsourcing Association (HOA), Employers’ Association of the Software and Services Industry (ANIS) from Romania, Bulgarian Web Association (BWA) and ASPIRE – Association of IT & Business Process Services Companies (Poland). One of the main objectives of CEEOA is to promote the Central and Eastern European Region as competitive alternative to other Global offshoring destinations, and to increase services delivery quality and volume to the recognized standards.

Pune, India, 19 May 2009

Although legal services outsourcing has garnered a lot of media attention, there still is a sizeable proportion of the legal community that has not considered outsourcing legal services to lower cost destinations.

Offshoring of legal services to India began way back in 1995 when law firm Bickel & Brewer opened a captive facility in India. The legal services outsourcing industry started to attract significant attention only around 2005. In a matter of just a few years, the industry has grown to reach $225 million in revenues in 2008. However, this is only a very small portion (<5%) of the addressable market. According to the recent survey results, there is a low perceived benefit of outsourcing legal services amongst law firms and (if not addressed) this is likely to stunt the growth of the LPO industry.

Most of the law firms are relatively new in terms of their offshoring initiatives and have not integrated offshoring in their overall strategy. A large number of law firms, irrespective of their size, are apprehensive about sending their legal work to another country. While this does result from lawyers not being convinced about the benefits of offshoring, they also indicate concerns such as data security, client confidentiality and quality of work delivered.

Cost reduction was rated as the primary driver for offshoring legal services. Other significant drivers include client pressure to cut costs by offshoring, increasing workload, time differences and competitors’ decisions to offshore. According to Neeraja Kandala, lead analyst – Legal Services, “There seems to be some awareness about the benefits of offshoring, especially amongst those who offshore. However, for the majority, the drivers do not seem to be strong enough. Obviously, the benefits do not appear to be substantial to help over-ride their concerns.”

Data security and quality of work delivered emerged as the key concerns for law firms. Given the confidential nature of legal documents, it is understandable that law firms have apprehensions on the security aspect.

While several leading and experienced offshore legal service providers take adequate precautions to ensure that there is no data theft, this needs to be communicated to the law firms in a more convincing manner. Further, service providers need to gain the confidence of buyers that a satisfactory end product will be delivered. According to Arun Jethmalani, CEO, ValueNotes, “This is the challenge for the provider community as a whole, but inconsistency in quality between the good and not-so-good providers will remain a problem until sufficient maturity is achieved – both by buyers and sellers.”

The ValueNotes report: “Legal Services Outsourcing: What do Law Firms Think?” provides an understanding of the offshoring awareness, drivers and concerns of US and UK based law firms. The survey throws light on the perceptions towards the associated risks and rewards of outsourcing legal services to low cost destinations.