Lifting of corporate veil with reference to leading cases corporate law reporter introduction corporate personality has been described as the most pervading of the fundamental principles of company law1. Lifting of corporate veil with reference to leading cases corporate law reporte. Approach of the uk court in piercing corporate veil by liton. Lifting or piercing the veil is corporate law s most widely used doctrine to decide when a shareholder or shareholders will be held liable for obligations of the corporation. 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. Aug 12, 2012 the courts will break through the corporate shell and apply the principle of lifting or piercing the corporate veil. A reassessment of the fraud exception jennifer payne if students of company law know just one case, that case will be salomon v. Lifting of corporate veil or disregarding of the corporate personality is common buzz in the modern corporate arena. Part i of this paper will briefly survey the concept of company as a separate entity. However, there has not been a comprehensive empirical study of the australian cases relating to piercing the corporate veil.
The paper does not cover the statutory provisions for lifting of corporate veil. Scenarios under which the courts consider piercing or lifting the corporate veil are as below, 1 to determine the character of the company. Limitation the paper only deals about lifting of corporate veil in general and the instances in which court can life it. In these instances the application has extended to eliminating the use of the corporate form to avoid legitimate obligations. It may hold the stockholders personally liable for the firms obligations under the legal concept of lifting the corporate veil. Lifting the veil can be used to impose liability upon the shareholders or for other purposes, such as ascertaining appropriate jurisdiction. Just as a natural person cannot be held legally accountable for the conduct or obligations of another person, unless they have expressly or implicitly assumed responsibility. The doctrine of lifting the corporate veil means ignoring the corporate nature of the body of individuals incorporated as a company. Similarly, the supreme court in the case of tata engineering locomotive co. Lifting the veil occurs where the courts or law disregard the corporate personality of the company in deserving circumstances. Based on the analysis of the relevant legislative provisions and some court cases, it is found that ethiopian company law, though not sufficient. Lifting or piercing the corporate veil the company, in the contemplation of law, is a person distinct from the shareholders. The courts will break through the corporate shell and apply the principle of lifting or piercing the corporate veil. Piercing the corporate veil under the new companies act.
It is given mandate to provide various kinds of information such as minutes of meetings, number of directors, list of objects for what the company is formed and others. Lifting of corporate veil with reference to leading cases. 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 critical analysis of common law principles in lifting the corporate veil. It contains a comprehensive survey of the corporate veil cases in hong kong. For example, veil piercing may be done where the corporation is the mere alterego of its shareholders, where the corporation is undercapitalized, where there is a failure to observe corporate formalities, where the corporate form is used to promote fraud, injustice or illegalities. T he elements of lifting up of corporate veil and grounds under which. Lifting of the corporate veil means disregarding the corporate personality and looking behind the real person who are in the control of the company. Lifting or piercing of corporate veil circumstances in. 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. In a number of circumstances, the court will pierce the corporate veil or will. Over the years, they have taken an inconsistent approach and so categorising the situations is. 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.
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. It constitutes the bedrock principle upon which company is regarded as an entity distinct from. Prest decision in the light of the economic analysis of the companys limited liability article pdf available in ssrn electronic journal january 2017. It continues to be one of the most litigated and most discussed doctrines in all of corporate law. This paper provides an empirical, comparative, and development perspective on the corporate veil doctrine. Lifting of the corporate veil for environmental degradation. In cases of economic offences, a court is entitled to lift the veil of corporate entity and pay regard to the economic realities behind the legal facade. Analysis of the development is done by looking at the veil piercing doctrines under u.
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. Under statutory provisions under judicial interpretation 4. Approach of the uk court in piercing corporate veil by. Therefore, the salomon principle remains an important part of corporate law today.
The central purpose of this paper is to investigate the bounds of the principle of limited liability. 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. Natal the dissertation is submitted in partial fulfilment of the requirements for the degree of master of laws, by coursework, faculty of law, university of natal. In another landmark decision of the supreme court in new horizons ltd. 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.
In doing the same, the courts have evolved the concept of lifting or piercing the corporate veil. 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 for the purpose of holding them liable3. Lifting the veil doctrine exists as a check on the principle that, in general, investor shareholders should not be held liable for the debts of their corporation beyond. In this article, we present the results of the first such study. A clear understand ing of the doctrine of lifting up of corporate veil is necessary and also clear understanding of corporate personality is also necessary along with the provisions in indian companies act 20 and other provisions relating to lifting up of corporate veil. The essay analyses and scrutinises under which circumstances the corporate veil can be disregarded in the uk. To lift or not to lift the corporate veil the unfinished. 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. Company law lifting of corporate veil with reference to leading case shagun singh 15.
An empirical, comparative and development perspective thomas k. However, the courts have not always applied the separate legal entity principle as the salomon case. 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. In cases where the veil is lifted, the law either goes behind the corporate personality. Thus, the court upheld this veil to protect the shareholders and directors and has been cited in many cases since. The veil shall be lifted to prevent the avoidance of recognition by the eyes of equity. This empirical study evaluates these claims about piercing the veil cases by analyzing the nature of the corporations, the plaintiffs, the courts, and the reasons. Some researchers argue that the courts have become increasingly willing to lift the veil. It constitutes the bedrock principle upon which company is regarded as an entity distinct. Jun 12, 20 company law lifting of corporate veil with reference to leading case shagun singh 15. This flexibility extends, in the last resort, to the view which the.
Lifting the corporate veil provisions under the companies. In my view, the principle that the court may be justified in piercing the corporate veil if a companys separate legal personality is being abused for the purpose of some relevant wrongdoing is well established in the authorities. Thus the piercing or lifting of the corporate veil refers to the possibility of looking beyond the company framework to make the members liable, as an exception to the rule that they are normally shielded by the corporate law. Definition of lifting the corporate veil in the legal dictionary by free online english dictionary and encyclopedia. In adeyemi v lan and baker nig ltd, the court held that there is nothing sacrosanct about the veil of incorporation. There are cases where the courts need to understand if the company is an enemy or friend. This paper is written as a comparative study of the development of the corporate veil piercing doctrine throughout the years. The issue came up for discussion in the case of adams v. Judges were clear when the veil could not be pierced, but, absent a clear case of fraud, less clear about when they could. In the american tradition, it is referred to as lifting the veil of incorporation or the disregard by the courts of the companys corporate personal or separate existence from its shareholders.
In such cases, the courts adopt the test of control. The concept of lifting the veil under the english doctrine there are a number of exceptions to the separate legal personality principle. The lifting of the corporate veil implies neglecting the corporate personality and looking for the genuine individual who is in the control of the organization. Union of india,7 the court observed that the corporate veil may be lifted and the independence of the corporate entity disregarded, in cases where the principle of corporate personality is flagrantly opposed to justice, convenience, or in the interest of revenue. As a general principle, corporations are recognized as legal entities separate from their shareholders, officers, and directors. Lifting of corporate veil under the companies act ipleaders. To offer a full account of the exceptions to the corporate personality doctrine, this paper also. Part iii analyses the common law grounds of lifting the veil that have been frequently proposed, to determine the underlying reasons for. The corporate veil in the united kingdom is a metaphorical reference used in uk company law for the concept that the rights and duties of a corporation are, as a general principle, the responsibility of that company alone. Thompson t i introduction piercing the corporate veil is the most litigated issue in corporate law and yet it remains among the least understood. The doctrine of piercing or lifting of the veil of a corporate personality makes a change in the attitude of law as originally adopted towards the concept of separate legal personality or entity of the corporation. In these cases, courts look beyond the form to the substance of the corporations actions. Principle of lifting the corporate veil legal service india. In cases where the veil is lifted, the law either goes behind the corporate personality to the individual members or ignores the separate.
The lifting of corporate veil doctrine in hong kong. 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. The company, in the contemplation of law, is a person distinct from the shareholders. 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. Pdf approach of the uk court in piercing corporate veil. Common law countries usually uphold this principle of. The english courts have been often asked to disregard the separate legal personality of a company and its shareholders. The phrase piercing the corporate veil was described in a 1973 case as now fashionable. Piercing or lifting the veil is corporate laws most widely used doctrine to decide when a shareholder or shareholders will be held liable for obligations of the corporation. At the end of the day, where a false and deceptive utilize is made of the legitimate entity, the people concerned wont be permitted to take shield behind the corporate personality. Cases and articles have been used to set out the main principles in which the law is based. Meaning of lifting the corporate veil as a legal term. Lifting the veil of incorporation under common law and.
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. 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. In my view, the principle that the court may be justified in piercing the corporate veil if a companys separate legal personality is being abused for the purpose of some relevant wrongdoing is well established in. This undermines the notion that salomon occupies the centre stage in corporate. Lifting or piercing the veil is corporate laws most widely used doctrine to decide when a shareholder or shareholders will be held liable for obligations of the corporation. Lifting the corporate veil in company law, the doctrine of. The paper examines case law and statutory provisions related to lifting the corporate veil. Principle of lifting the corporate veil there is often talk about how a company is a person in eyes of law. A company is treated as if its a human of its own kind. Term paper on lifting of corporate veil under judicial. The authors shall also discuss its history and subsequent evolution and the various approaches in form of theories which the courts have adopted while deciding whether or not to pierce the corporate veil.
Dec 14, 2010 part i of this paper will briefly survey the concept of company as a separate entity. To lift or not to lift the corporate veil the unfinished story. It constitutes the bedrock principle upon which company is regarded as. In these cases courts lift the corporate veil to make members liable for the actions of the company. Aug, 2019 the essay analyses and scrutinises under which circumstances the corporate veil can be disregarded in the uk. The paper aims to study and analyze the concept of lifting the corporate veil and the instances in which court can lift it. The three justifications for piercing the corporate veil. There have been cases where the doctrine of lifting or piercing the corporate veil has been applied outside instances of commercial abuse or fraud. Lifting the corporate veil legal definition of lifting the. 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 court will make the members or the controlling persons liable for debts and obligations of the company.
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