Companies Act 19,550 · Article 54 — Intentional misconduct or negligence of a member or controller — Disregard / unenforceability of separate legal personality

Disregard of separate legal personality: piercing the corporate veil (LGS art. 54)

Article 54 of the General Companies Law authorizes courts to pierce the corporate veil: where a company is used to violate the law, public policy or good faith, or to frustrate third-party rights, that conduct is attributed directly to the shareholders, members, or controllers who made it possible, who are jointly and severally liable without limitation. The article also requires compensation for damage caused to the company by intentional misconduct or negligence of a member or controller.

Source: Act 19,550

What article 54

Article 54 governs two matters: liability of a shareholder, member, or controller for damage caused to the company through intentional misconduct or negligence and, in its final paragraph, disregard / unenforceability of separate legal personality, the remedy allowing the corporate entity to be set aside for abusive or fraudulent use.

Official text · Act 19,550, art. 54

Damage caused to the company by intentional misconduct or negligence of shareholders or members, or of persons who control it without being shareholders or members, makes the persons responsible jointly and severally liable to compensate the damage, and they may not claim a set-off based on profits their conduct may have produced in other transactions.

A shareholder, member, or controller who applies the company's funds or assets to that person's own use or business, or to that of a third party, must account to the company for the resulting profits, while losses are borne exclusively by that person.

Disregard of separate legal personality. Conduct by the company that conceals the pursuit of purposes outside the corporate purpose, constitutes a mere device to violate the law, public policy or good faith, or is used to frustrate third-party rights, shall be attributed directly to the shareholders, members, or controllers who made such conduct possible, who shall be jointly and severally liable without limitation for the harm caused.

Source: Law 19,550, art. 54 - InfoLEG (updated official text)

Commentary

The final paragraph of article 54 is the central Argentine statutory rule for disregarding separate legal personality—piercing the corporate veil. The general rule is that the company is a legal subject distinct from its shareholders or members (art. 2). Article 54 provides the exception: when that separation is used as a screen for non-corporate purposes, to violate the law, or to prejudice third parties, a court may attribute the conduct directly to those who made it possible.

This is an exceptional remedy, construed restrictively. Mere inability of the company to pay is not enough, nor is the mere existence of a single shareholder. Misuse of the corporate form must be proven. Properly applied, the rule reaches both shareholders or members and controllers—including a person exercising control without formal ownership—who incur joint and several, unlimited liability.

The first two paragraphs instead address internal liability: a member or controller who harms the company intentionally or negligently must compensate it and may not offset that damage with gains generated by the same conduct in other transactions.

Distinctions often confused

Disregard / unenforceability (art. 54, final paragraph) is not the same as Nullity of the company. Disregard does not annul the company. It sets aside separate personality for that abusive conduct and attributes it to the responsible shareholders, members, or controllers. The company continues to exist for other purposes.

Liability for intent or negligence (art. 54, first paragraph) is not the same as Disregard (art. 54, final paragraph). The first paragraph compensates harm to the company; the final paragraph attributes abusive use of the corporate form to shareholders, members, or controllers vis-à-vis third parties.

Practical impact

In practice, article 54 is invoked in cases of asset stripping, undercapitalization, commingling of assets, or use of a company to evade labor, tax, or contractual obligations. Because the remedy is exceptional, success depends on evidence of misuse; it is not a shortcut to collect from shareholders simply because the company is insolvent.

Frequently asked questions

What does 'piercing the corporate veil' mean here?

It means setting aside, for the relevant conduct, the separation between the company and its shareholders, members, or controllers so that abusive or fraudulent corporate conduct is attributed directly to them. Article 54's final paragraph is the statutory basis in Law 19,550.

Does article 54 reach a controller who is not formally a shareholder?

Yes. Article 54 expressly includes persons who control the company without being shareholders or members; a de facto controller may therefore be liable.

Is it enough that the company cannot pay its debts?

No. Disregard is exceptional and restrictively construed. It must be shown that separate legal personality was used to violate the law, public policy or good faith, or to frustrate third-party rights.

This page is informational and does not constitute legal advice nor replace professional consultation. It quotes the official text of the rule; for its application to a specific case, consult a licensed professional.

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