C mitchell, lifting the corporate veil in the english courts. Purpose the paper examines case law and statutory provisions related to lifting the corporate veil. In some cases the corporate veil has not been lifted prime examples of that. The court recognised the fundamental principle of the corporate veil by noting that, the approach of both the corporate and tax laws, particularly in the matter of corporate taxation, generally is founded on the abovementioned separate entity principle, i. Lifting corporate veil company law 1 linkedin slideshare. Lifting the corporate veil the courts have been extremely protective of the salomon principle, and it. Lifting of corporate veil or disregarding of the corporate personality is c ommon buzz in the. The law goes be hind the veil or screen in between the company and its members in order to find out the person behind the mask for the sole reason that is to make the wrongdoer personally. One of the main motivations for forming a corporation or company is the limited liability it offers its shareholders. When a company is incorporated it is treated as a separate legal entity distinct from its promoters, directors, members, and employees. Over the years, they have taken an inconsistent approach and so categorising the situations is difficult. Usually, the owners of the company are free from any liability.
Lifting the veil judicial exceptions statutory exceptions company. Company law lifting of corporate veil with reference to leading case shagun singh 15. In the american tradition, it is referred to as lifting the veil of incorporation or the disregard by the courts of the company s corporate personal or separate existence from its shareholders. The act of piercing the corporate veil until now remains one of the most. Definition of lifting the corporate veil in the legal dictionary by free online english dictionary and encyclopedia. In this respects, the court will get through the corporate shell and apply the guideline of what is known as lifting or piercing the corporate veil. Wherever the members of a company breach any statutory provisions or carry out any illegal act under the guise of the corporate veil above the company, thereby misuse the privilege conferred on them, the courts are entitled to look beyond the veil or lift the veil, and this is known as lifting of corporate veil. Lifting of corporate veil of company under company law law times. Refer to circumstances where the law or the court disregard the corporate entity by looking behind it to determine the reality of a situation. In a number of circumstances, the court will pierce the corporate veil or will ignore the corporate veil to reach the person behind the veil or reveal the true form and character of the concerned company. Part iii analyses the common law grounds of lifting the veil that have been frequently proposed, to determine the underlying reasons for judicial disregard of the separate entity principle. The lifting of corporate veil doctrine in hong kong. Lifting of corporate veil academike lawctopus for law.
In times of war the court is prepared to lift the corporate veil and determine the nature of shareholding as it did in the daimler case where germen shareholders held the shares of an english company during the time of world war 1. As per the companies act 20 company means any a company formed and registered under the companies act 20. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the. Introduction the lifting of corporate veil doctrine remains one of the most difficult areas of hong kong company law. The doctrine of lifting the corporate veil means ignoring the corporate nature of the body of individuals incorporated as a company. Lifting the corporate veil academike lawctopus for law. In the case of nepal, the statutory provisions that guide it are found under nepalese company act 2063. Aug, 2019 the essay analyses and scrutinises under which circumstances the corporate veil can be disregarded in the uk. The companys act kenya 2015 seems to ignore the possibility of lifting the corporate veil to make members of a company liable for the company s wrongs.
The law on when a court may disregard this principle by lifting the corporate veil and regarding the company as a mere agent or puppet of its controlling shareholder or parent corporation follows no consistent principle. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owed. Generally, the law will not go behind this veil of incorporation to look at the membership of the company. While we deal with these provisions in detail in chapter 17, we brie. The companys act kenya 2015 seems to ignore the possibility of lifting the corporate veil to make members of a company liable for the companys wrongs. Cases and articles have been used to set out the main principles in which the law is based. Lifting of corporate veil academike for law students. Part i of this paper will briefly survey the concept of company as a separate entity. Concept in the eyes of law, a company is a legal person with a separate entity distinct from its members of shareholders. A legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company s debts and other obligations. Lifting of corporate veil with reference to leading cases.
Lifting of corporate veil by advocate sanyog vyas duration. The most fundamental principle of a company law is its corporate personality. Lifting the corporate veil provisions under the companies. Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders.
Another meaning of corporate veil is lift is a legal term where the court allows a lawsuit or prosecution to proceed against the individual. In such cases the courts will lift the corporate veil and investigate the activities of the company. The defendants company and the defendants wife entered into a lease agreement solely for purposes of defeating the sale in execution that was imminent and so that they could remain in occupation of the property after the sale. Prest decision in the light of the economic analysis of the companys limited liability. The fundamental attribute of corporate personality, from which all other consequences flow if that the corporation is a legal entity distinct from its members. In cases where the veil is lifted, the law either goes behind the corporate personality. There is a dearth of overarching guiding principles for a body of largely incoherent case law. This doctrine has been established for business efficacy, necessity and convenience. In other words, where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to take shelter behind the corporate personality.
Being an artificial person, it company cannot act on its own, it can act only by natural persons. It constitutes the bedrock principle upon which company is regarded as an entity distinct from. Wherever the members of a company violates any statutory provisions or carry out any nondesirable activities under the guise of the corporate veil above the company, thereby misuse the privilege conferred to them, the courts are entitled to look beyond the veil, and this is known as lifting of corporate veil. And while by the fiction of law an organization is an unmistakable element, yet truly it is an association of people who are in reality the beneficial proprietors of all the corporate property. Company law lifting the veil of incorporation part i. The veil shall be lifted to prevent the avoidance of recognition by the eyes of equity. In other words, the company alone is liable for all the acts done and the debts incurred by it and not the directors or the shareholders who are in fact the beneficial owners of the company. Lifting of corporate veil of company under company law. Instead, attention is given to making directors and other officers liable for corporate wrongs in specified circumstances. Every corporation must follow the laws of the state of incorporation. The court will disregard the corporate veil to see the real persons behind it.
However, there are certain circumstances when the court of law removes the veil so that the members of the corporation are not protected anymore by the veil. It is assumed that the owners of the company are protected from liabilities by the company under a veil of incorporation. Additionally, many of the situations where lifting the veil is at issue involve corporate insolvency, the insolvency act 1986 has some key veil lifting provisions. Feb 10, 2018 may 02, 2020 concept of lifting of corporate veil introduction, company law b com notes edurev is made by best teachers of b com. Disregarding the separate corporate personality is often referred to lifting or piercing the veil.
By vasundhara majithia, yamini rajora, national law university jodhpur. Broadly there are two types of provisions for the lifting of the corporate veil judicial. Courts have authority to ignore the corporate character and remove the veil against any person hiding behind the name of the company, for fraud committed. Principle of corporate personality in the eyes of law, if a company is duly incorporated it has a separate legal entity. Lifting the veil of incorporation wmh law corporation. This document is highly rated by b com students and has been viewed 4710 times.
Corporate personality and the veil of incorporation 2. The veil of corporate personality, even though not lifted sometimes, is becoming more and more a transparent form of ensuring smooth business practices in modern jurisprudence. In company law, the doctrine of lifting the corporate veil has been well known for some time. Jun 12, 20 company law lifting of corporate veil with reference to leading case shagun singh 15. In the doctrine of lifting the corporate veil, the law. Lifting of corporate veil law corner corporate law. Apr 08, 2015 in the doctrine of lifting the corporate veil, the law goes behind the mask or veil of incorporation in order to determine the real person behind the mask of a company.
Principle of lifting the corporate veil there is often talk about how a company is a person in eyes of law. The concept of lifting the corporate veil has been regarded by the courts and jurists. Term paper on lifting of corporate veil under judicial. Section of the companies act 71 of 2008 sets out the process and procedure to be followed in order to incorporate a company. The most common way of lifting the corporate veil in company law one can come across involves close corporations. The company, in the contemplation of law, is a person distinct from the shareholders. Meaning of lifting the corporate veil as a legal term. Pdf approach of the uk court in piercing corporate veil. Lifting of corporate veil under the companies act ipleaders. Introduction when carrying on business, seeking an appropriate corporate structure which accommodates to the needs of the intended business and lifting the corporate veil uk law. A company is a juristic person, but in reality it is a group of person who are the beneficial owners of the property of the corporate body.
From peeping behind the corporate veil, to ignoring it. The doctrine of lifting the veil can be understood as the identification of the company with its members. In turn, a protective veil of sorts is cast over the true controllers of the company. Jun 25, 2019 company law lifting the veil of incorporation part i. Jan 07, 2015 the corporate veil may be lifted where the statute itself contemplates lifting the veil or fraud or improper conduct is intended to be prevented. However, there has not been a comprehensive empirical study of the australian cases relating to piercing the corporate veil. Lifting the veil of incorporation under common law and. In the doctrine of lifting the corporate veil, the law goes behind the mask or veil of incorporation to determine the real person or group of people behind the company.
A company is treated as if its a human of its own kind. What is lifting of corporate veil in company law malescu. The incorporation of a company creates a separate person in law. Lifting the veil can be used to impose liability upon the shareholders or for other purposes, such as ascertaining appropriate jurisdiction. In adeyemi v lan and baker nig ltd, the court held that there is nothing sacrosanct about the veil of incorporation.
The concept of lifting the corporate veil is a very dynamic concept. Part iii analyses the common law grounds of lifting the veil that have been frequently proposed, to determine the underlying reasons for. Whilst there is a general reluctance to lift the corporate veil, there is a body of case law where the courts have considered doing so. Principle of lifting the corporate veil legal service india. The subject of lifting the veil is well kflowfl in the literature on company law. Lifting of corporate veil black law s dictionary defines piercing of corporate veil as follows. Concept of lifting of corporate veil introduction, company. In this article, we present the results of the first such study.
Oct 16, 2017 the concept of lifting of corporate veil scrutinizes, the human agency behind the scenes of the company, to determine the real culprit committing such offences. The concept of lifting of corporate veil scrutinizes, the human agency behind the scenes of the company, to determine the real culprit committing such offences. Lifting or piercing the corporate veil the company, in the contemplation of law, is a person distinct from the shareholders. Taxat times tax legislations warrant the lifting of the corporate veil. Lifting the corporate veil the courts have been extremely protective of the salomon principle, and it is only in extreme circumstances that they will consider lifting the veil. Corporate veil zimbabwe legal information institute. Consequently, a companys liabilities are its own, not those of its shareholders. Lifting the corporate veil legal definition of lifting the. Lifting of the corporate veil means disregarding the corporate personality and looking behind the real person who are in the control of the company. The courts according to gowers common dictum would lift the veil when the corporate personality of the company is being blatantly being used as a means to commit fraud, improper conduct or where the protection. Overview principle of corporate personality statutory veil lifting judicial veil lifting impact of adams conclusion 3.
It constitutes the bedrock principle upon which company is regarded as. Company law k1208885 what is meant by the corporate veil. The two classic cases of the fraud exception are gilford motor company ltd v. Corporate personality and piercing or lifting the veil of incorporation tends to be a popular topic for exam questions, and can also connect with most other topics in company law. The essay analyses and scrutinises under which circumstances the corporate veil can be disregarded in the uk. Oct 02, 2016 overview principle of corporate personality statutory veil lifting judicial veil lifting impact of adams conclusion 3. Where a court determines that a company s business was not conducted in. The concept of the corporate veil dates back to the landmark decision of the house of lords in salomon v a salomon and co ltd 1897 ac 22, where the legal separation between a company and its shareholders was established. In doing the same, the courts have evolved the concept of lifting or piercing the corporate veil.
Common law countries usually uphold this principle of. Dec 14, 2010 part i of this paper will briefly survey the concept of company as a separate entity. However, obviously this opens up the possibility of abusing the corporate form and so a necessary part of company law is to allow the court to lift the veil when appropriate. This document, prepared by the american bar association section of business law, committee on corporate laws. The veil of corporate personality may be lifted as per the provision of the company law of the country. An analysis of lifting of the corporate veil in light of s209 of. Lifting the corporate veil in company law, the doctrine of. The aim of the paper is to explore recent case law in order to determine whether courts have moved away from an overly restrictive approach when dealing with cases relating to the corporate personality. Abuse of the separate legal personality separate legal personality. Circumstances in which courts may lift the corporate veil.
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