Legal Definitions - alter-ego rule

The alter-ego rule is a legal principle that applies to corporations. It states that shareholders will be considered the true owners of a corporation's property or assets, or the real parties involved, if it is necessary to prevent fraud or ensure justice.

For example, if a corporation is created solely for the purpose of shielding its owners from personal liability, and the corporation is used to commit fraud or other illegal activities, the alter-ego rule may be applied. In this case, the shareholders would be held responsible for the corporation's actions and could be sued or held liable for damages.

Another example would be if a corporation is used to hide assets or income from creditors or legal judgments. In this case, the alter-ego rule could be applied to pierce the corporate veil and hold the shareholders personally responsible for the debts or obligations of the corporation.

The alter-ego rule is an important legal principle that helps ensure that corporations are not used to shield individuals from liability or to commit fraud or other illegal activities.