Civil Liability of Legal Entities under Private Law

A separação entre pessoa jurídica e sócios é uma das maiores conquistas do direito moderno. Mas quando essa proteção vira instrumento de fraude, o juiz pode levantar o ‘véu’ da empresa e alcançar diretamente quem está por trás do abuso.

Legal entities were created to be instruments of organization, economic development, and protection. Separating a company's assets from its partners' assets is one of the greatest achievements of modern law.

But... what about when this separation is abused?

Misuse of legal entities

Companies are not always used for legitimate purposes. There are situations in which they become a shield to defraud creditors, protecting personal assets and embezzling funds.

Some common examples:

• Asset confusion: when the company's cash flow and that of its partners are mixed without limits, for example, when the company constantly pays the partners' debts, or when a partner acquires personal assets in the company's name;

• Misuse of purpose: the company exists only “on paper,” with no real activity, serving as a front;

• Front economic group: creation of several interconnected companies to spread debts and make collection difficult.

It is worth noting that the mere existence of asset confusion or other evidence is not sufficient, in itself, to characterize fraud or bad faith. It is necessary to analyze the context and intention behind the acts.

What Brazilian civil law says

The Civil Code, in its Article 50, provides for the so-called disregard of legal personality.

In simple terms, this means that when a company is used abusively, whether for fraud or to confuse assets, the judge can “lift the veil” of the legal entity and directly access the assets of the partners or companies in the group.

In other words, the focus is no longer solely on the company, and liability extends to those behind it.

How it works in practice

In practice, Brazilian courts analyze:

• Whether there was a misuse of the company's purpose;

• Whether there is confusion between assets;

• Whether there is a de facto economic group, created solely to hinder creditors.

Once abuse is established, the barrier between the legal entity and its partners is broken, allowing the creditor to seek satisfaction of their claim directly against personal assets.

Why this topic matters

Brazilian private law grants broad freedom to individuals and companies: everything that is not prohibited is permitted. This freedom, however, comes with responsibility.

The use of legal entities must always respect their legitimate function: to organize, undertake, and protect. When used for the opposite purpose, it can cause more harm than good. Each situation must be evaluated with caution, as misuse of the corporate structure paves the way for direct liability.

In summary: legal entities exist to serve as instruments of protection and development, but never for fraud. When abuse becomes evident, civil law allows the formal barrier of the company to be overcome and those who actually benefited from the illegal practice to be held accountable.