Essentially, the corporate veil is a metaphoric veil with the company on one side of it and its directors and shareholders on the other and liability does not pass through. Legislation and courts nevertheless sometimes pierce. The court cited its decision in 642947 ontario ltd. Such protection also helps a company attract investment. Incorporation slaughter house cases 1873 the court ruled that the privileges and immunities clause protected only certain narrow federal rights such as the right to travel, to petition congress, and to vote in national elections, not the protections found in the bill of rights. The chief advantage of incorporation from which all others follow is the separate entity of the company. 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. Cases and articles have been used to set out the main principles in which the law is based. Common law countries usually uphold this principle of. The majority of cases dealing with this issue recognise the principle rather than. Therefore, the courts in many cases, were reluctant to break through the corporate veil and refused to identify a company with its members even a company was found as a mere fraud. In that case the apex court laid down the principle that a company is a distinct legal person entirely different from the members of that company. The five most common ways to pierce the corporate veil and.
Reasons for lifting the veil of incorporation studocu. The paper examines case law and statutory provisions related to lifting the corporate veil. Lifting the veil of incorporation under common law and. The principle of veil of incorporation is a legal concept that. Keep business and personal dealings separate, or it may cost you. In those cases there was an issue of transferring contractual obligations the same way. The effect of the decision was that creditors of a company that had gone insolvent would not be able to sue the shareholders of the company for its. To offer a full account of the exceptions to the corporate personality doctrine, this paper also. In a majority of cases, the claimant is seeking to pierce the corporate veil because of the wrongdoing of the company or its owners.
The courts may pierce the corporate veil to look at the characteristics of the shareholders. The lifting or piercing of the corporate veil is more or less a judicial act. In certain cases the courts have disregarded the separate legal personality of a company in order to recognise the. Piercing the corporate veil wex us law lii legal information. However, business owners can still be liable for business activities if they failed to follow corporate guidelines, commingled assets or acted recklessly. It constitutes the bedrock principle upon which company is regarded as.
One of the first indian cases that dealt with the issue of a company as an independent juristic personality and the lifting of the veil, known almost as well as salomon, is the ruling of the supreme court in the case of life insurance corporation of india v. Understanding the veil of incorporation psf accounting. Mr s sells company to his own business and issues debentures as an i. The principle of lifting the veil of incorporation is often used for transition tort liability from the company to its owner. Control and determination part of the test determines. Lifting the veil of incorporation under common law and statute. This principle is known as the veil of incorporation. Significantly, we find no piercing cases in which a court pierces the corporate veil solely because a corporation is undercapitalized.
The veil of incorporation limits the personal liability of corporate directors, officers and employees for actions taken by the business. Lifting or piercing of corporate veil circumstances in. Purpose the paper examines case law and statutory provisions related to. To offer a full account of the exceptions to the corporate personality doctrine, this paper also examines cases where the veil of incorporation is lifted due to a breach of a statutory provision. Lifting the veil of incorporation case study example.
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. The corporate veil is drawn from the salomon principle which separates the rights and duties of the company from the rights and duties of the shareholders and directors. Lifting or piercing of corporate veil incorporation of company ca intermediate corporate laws duration. For example, in confiscation proceedings under the proceeds of crime act 2002 monies received by a company can, depending upon the particular facts of the case as found by the court, be regarded as having been obtained by an individual who is usually, but not always, a director of the company.
Therefore, the courts in many cases, were reluctant to break through the corporate veil and refused to identify a company with its members even a company was found as a mere. The court of appeal rejected an unprincipled and broad brush approach and listed some nonexhaustive factors to be considered. Lifting the veil of incorporation flashcards quizlet. The principle of separate corporate personality as. 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. However lifting of the veil of incorporation is the rare exception to the rule in sri lanka. The court of appeal noted that while the corporate veil can be pierced in cases involving sham corporations, there are other circumstances in which the remedy is applicable. However, the advantages of corporate personality may be used by some fraudulent and unscrupulous people for the purpose of committing fraud, or as a means to evade a contractual or other legal obligation, thus, in some certain cases, the courts will lift the veil of incorporation. In adeyemi v lan and baker nig ltd, the court held that there is nothing sacrosanct about the veil of incorporation.
This undermines the notion that salomon occupies the centre stage in corporate law today. Sometimes in the case of group of enterprises the salomon principal may not be adhered to and the court may lift the veil in order to look at. Lifting of corporate veil black laws dictionary defines piercing of corporate veil as follows. This principle may be referred to as the veil of incorporation. Piercing the corporate veil is when the courts ignore the corporate veil placed on an llc or corporation.
Lifting the veil occurs where the courts or law disregard the corporate personality of the company in deserving circumstances. The cases in which the corporate veil has been lifted fall into four main. Michael2 abstract from the age long decision of house of lords in the case in salomon v. 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. In english criminal law there have been cases in which the courts have been prepared to pierce the veil of incorporation. A recession resulted in the company going into liquidation. Incorporation by registration was introduced in 1844 and the doctrine of limited liability followed in 1855.
Carlton is a leading case on piercing the corporate veil. In a situation where a company may have been formed to avoid a legal liability, the veil of incorporation may be lifted. The restrictions on lifting the veil, found in contractual cases made no. The essay analyses and scrutinises under which circumstances the corporate veil can be disregarded in the uk. Lifting of corporate veil with reference to leading cases.
Salomon is the judicial authority that enforces the legal personality of corporate entity especially when it has been incorporated. Reasons for lifting the veil of incorporation company law studocu. In that case the apex court simply laid down that a company is a distinct legal person entirely. Lifting of corporate veil of company under company law. This is what happened in this piercing the corporate veil new york court case.
Lifting of corporate veil with reference to leading cases 1. This finding is consistent with the fact that legislatures permit thinly capitalized firms to engage in business and generally do not require that companies be wellcapitalized in order to be formed. The veil of incorporation ensures that a company is a separate legal entity from its directors, employees and shareholders, thus protecting their personal assets from lawsuits. Lifting the veil of incorporation chancery law chronicles. In cases where the agency agreement holds good and the parties concerned have expressly agreed to such an agreement them the corporate veil shall be lifted and the principal shall be liable for the acts of the agent.
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. Lifting the veil of incorporation in confiscation cases. Piercing the corporate veil refers to a situation in which courts put aside limited liability. The case of boyle transport northern ireland limited v r 2016 ewca crim 19 sets out some guidance when determining whether to pierce the corporate veil under the proceeds of crime act 2002 poca. Since the corporate form is a vehicle meant to facilitate commercial activity and investment, it is therefore safe to say that courts will not lift the veil of corporation without very good reason. Doctrine of lifting the veil received further development in the case antonio gramsci v stepanovs 2011 nyombi 2014. This separation is referred to as the veil of incorporation. The aim of the paper is to explore recent case law in order to. This doctrine emphasizes that a company has a separate entity from its. Examples of removing the veil of incorporation please bear in mind that the law does not always fit discretely into neat compartments, many of the cases cover. Piercing the corporate veil is the legal jargon used to describe an action pursued against a company that ultimately leads to personal liability of the owners, shareholders, or members wherein the.
Circumstances in which courts may lift the corporate veil. The concept lifting the veil of incorporation essay. One of the consequences of incorporation is the separation of an individual from the legal liabilities of a company. Company law lifting of corporate veil with reference to leading case shagun singh 15. Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or. The three justifications for piercing the corporate veil. English case law on piercing the corporate veil 42. This undermines the notion that salomon occupies the centre. The conditions under which the courts may pierce through the corporate veil can be classified under the following two heads.
These exceptions are described as lifting the veil of incorporation. Lifting or piercing the corporate veil company law. Once a company is incorporated and a certificate of incorporation is issued, with reference to case law explain the meaning and effects of separate legal. The veil shall be lifted to prevent the avoidance of recognition by the eyes of equity. The company is treated as in some degree identified with its members or directors or managers. English case law on piercing the corporate veil 42 words 6 pages piercing the corporate veil is a term that is commonly used in corporate law to refer to cases in which the limited liability of the corporation becomes unlimited to be able to impose certain responsibilities either to the particular corporation or to the shareholders of a.