A company can ratify a preincorporation contract made on its behalf 13. Registrationlifting the corporate veil a company is an artificial entity recognised by the law as a legal person with its own rights and liabilities 1. Piercing or lifting of corporate veil in hindi unacademy. The courts will break through the corporate shell and apply the principle of lifting or piercing the corporate veil. Till then keep supporting please do like, share, subscribe. Lifting the corporate veil in commercial litigation. Over the years, they have taken an inconsistent approach and so categorising the situations is.
If this was the last word of the indian judiciary on the point, then one could say that in india the corporate veil could be lifted on grounds of single economic entity as well as public interest. Section 218 of the 2008 companies act extends liability, while s 209 codifies the doctrine of piercing the corporate veil. The alter ego doctrine allows courts to pierce the corporate veil when two factors exist. Lifting of the corporate veil what does lifting the corporate veil entail. The lifting or piercing of the corporate veil is more or less a judicial act. The corporate veil theory is a legal concept which separates the identity of the company from its members. However, the courts have not always applied the separate legal entity principle as the salomon case. Piercing the corporate veil under the new companies act. The court will make the members or the controlling persons liable for debts and obligations of the company.
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. However, the title given to a company of an artificial person having its own legalities does not take away the fact that it is not a. Lifting the veil allows a court to look behind the separate legal personality of the company and attribute liability to the promotors of the company in their personal capacity. The lifting of corporate veil doctrine in hong kong. 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. The separate legal entity of a company is one of its most unique features. A company is an artificial person having separate legal entity, distinct from its members. 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 veil shall be lifted to prevent the avoidance of recognition by the eyes of equity. Justice over time, the courts acceptance of justice as a reason for lifting the veil has changed.
Lifting of corporate veil with reference to leading cases. Common law countries usually uphold this principle of. Judicial interpretations related to removal of corporate veil. Piercing the veil corporate personality salomon v salomon. 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.
As a consequence of the lifting of the corporate veil, the company as a separate legal entity is disregarded and the people behind the act are identified irrespective of the personality of the company. Some commentators also argue that these cases do not involve lifting the corporate veil at all. 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. A company is treated as if its a human of its own kind. In certain cases the courts have disregarded the separate legal personality of a company in order to recognise the substance or practical realities of. The second part will be uploaded soon and will contain judicial interpretations. This phenomenon which is applied by the courts and which is also provided now in many statutes is called lifting of the corporate veil. Lifting the corporate veil is an exception to the concept of separate legal entity. It may hold the stockholders personally liable for the firms obligations under the legal concept of lifting the corporate veil. Principle of lifting the corporate veil legal service india. 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. 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. Where specific reference is made to the law it is to english law as at 22 august 2012.
Tjio, lifting the veil on piercing the veil, 19 lmclq 2014, at 20. In doing the same, the courts have evolved the concept of lifting or piercing the corporate veil. Lifting the corporate veil part 1 law llb lecture notes. The doctrine of lifting the corporate veil means ignoring the corporate nature of the body of individuals incorporated as a company.
It constitutes the bedrock principle upon which company is regarded as an entity distinct. Examples of where a court might order the corporate veil to be lifted only occur in exceptional circumstances and, in the past, have included cases of fraud, reckless. The grounds for lifting the corporate veil indiacorplaw. Lifting of corporate veil of company under company law. Mayson, french and ryan state that even if the agency used to commit the fraud or evade the obligation had been another person rather than a company, the result would have been the same 16. 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. Find a reliable collection of management notes, ebooks, projects, presentations, video tutorials and lot more, compiled from a variety of books, case studies, guidance from management teachers and of course the internet to make your. This document is highly rated by b com students and has been viewed 4710 times. Lifting of corporate veil statutory provisions judicial interpretation and different condition in which lifting of corporate veil is applied with famous case laws. However, a retreat of some kind can be seen by the house of lords in woolfson v strathclyde.
The phrase piercing the corporate veil was described in a 1973 case as now fashionable. Legal entity is separate, independent from its founders the ability to own property, enter into commitments and act as a plaintiff, defendant in court. In a number of circumstances, the court will pierce the corporate veil or will. Principle of lifting the corporate veil there is often talk about how a company is a person in eyes of law. Reasons for lifting the veil of incorporation studocu. What is the purpose and under what circumstances can it occur.
October 12, 2016 updated on january 30, 2020 it is very common for businesses in australia to operate through private companies, also known as proprietary limited companies. Doctrine of lifting of or piercing the corporate veil the separate personality of a company is a statutory privilege and it must be used for legitimate business purposes only. In adeyemi v lan and baker nig ltd, the court held that there is nothing sacrosanct about the veil of incorporation. Boghtbarthet, the governing law of companies in eu law, hp oxford 2012, at 57. Introduction the lifting of corporate veil doctrine remains one of the most difficult areas of hong kong company law. Lifting the corporate veil part 2 law llb lecture notes.
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. This is the first part of lifting the corporate veil. 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. One of the key benefits of using a company structure is that operating a business through a company limits the risks that individuals who are involved in the business face personally. In case of a dishonest and fraudulent use of the facility of incorporation, the law lifts the corporate veil and identifies the persons members who are behind the scene and are responsible for the perpetration of fraud. Lifting the veil can be used to impose liability upon the shareholders or for other purposes, such as ascertaining appropriate jurisdiction. 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 many instances this proviso also aims to combat fraud, which is in the public interest. The court will break through the corporate cloak and will look behind the corporate body as if there is no separate existence of the company from its members. One of the most common grounds for the lifting of corporate veils, in cases wherein the shareholders of the company are indulging in fraudulent acts. The concept lifting the veil of incorporation essay by using real life examples, discuss and explain why the concept of lifting the veil of incorporation.
Company law 1 minahil ali lifting the corporate case law veil exceptions to the general. Here comes the 2nd part of lifting the corporate veil. 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. Over the years, they have taken an inconsistent approach and so categorising the situations is difficult. This shows that there is a veil drawn between the company and its members.
The horizon of the doctrine of lifting of corporate veil is expanding. May 02, 2020 concept of lifting of corporate veil introduction, company law b com notes edurev is made by best teachers of b com. Lord denning was a particular proponent of this approach, which he can be seen developing in the cases of wallersteiner v moir, and dhn food distributors ltd v london borough of tower hamlets. The concept of lifting the corporate veil is a changing concept. In this article, we will look at the famous corporate veil theory and try to understand the scenarios under which lifting or piercing the corporate veil is possible. 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. The common law notion of piercing the corporate veil is applied to protect the interests of a companys creditors. Concept a company is a legal person with a separate entity.
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. Lifting or piercing the corporate veil company law. 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. This naturally brings us to the question of lifting the corporate veil or piercing the corporate veil as we often call it. Lifting the corporate veil legal definition of lifting the. 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. There is a dearth of overarching guiding principles for a body of largely incoherent case law. 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. Further, if found guilty of any misconduct, it can penalise the members for actions of the company including any pending debt. Lifting the veil occurs where the courts or law disregard the corporate personality of the company in deserving circumstances. Piercing the corporate veil in claims enforcement a lecture by james sleightholme, elborne mitchell llp 22 august 2012 these notes are derived from a talk by james sleightholme of elborne mitchell llp, given at lloyds old library on wednesday 22 august 2012. The concept lifting the veil of incorporation essay.
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