Jun 12, 20 company law lifting of corporate veil with reference to leading case shagun singh 15. Part i of this paper will briefly survey the concept of company as a separate entity. This is the process used to look behind the corporate facade and identify the true nature of a transaction. Judicial interpretation lifting of corporate veil by. Feb 10, 2018 mar 25, 2020 concept of lifting of corporate veil introduction, company law b com notes edurev is made by best teachers of b com. Principle of lifting the corporate veil legal service india.
Third, the karnataka high court appears to have readily permitted lifting the corporate veil without at all alluding to the jurisprudence on the subject matter. Definition and analysis of piercing the corporate veil. This essay will engage in a critical analysis of the core concepts of english company law. Prest decision in the light of the economic analysis of the companys limited liability article pdf available in ssrn electronic journal january 2017. 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. This article discusses an increasingly pertinent question. To offer a full account of the exceptions to the corporate personality doctrine, this paper also. The principle of separate corporate personality forms the. Incorporation of an organization by registration was presented in 1844 and the precept of limited liability of an organization followed in 1855. Lifting the corporate veil is an exception to the concept of separate legal entity. Piercing the corporate veil and alter ego liability 2. This is despite the general principle that shareholders are immune from suits in contract or tort that otherwise would hold only the corporation liable. Lifting the corporate veil, in simple words means disregarding the corporate personality and looking behind the real person who are in the control of the company and where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to take 19 supra note 6.
Lifting of the corporate veil means disregarding the corporate personality and looking behind the real person who are in the control of the company. It continues to be one of the most litigated and most discussed doctrines in all of corporate law. Lifting of corporate veil in tort cases in pursuit of. The paper examines case law and statutory provisions related to lifting the corporate veil. This article at first introduces to the readers the concept of veil of incorporation, then it explains the meaning of the termlifting of the corporate veil, it then points out the judicial as well as the statutory provisions for lifting of the corporate veil with the help of various caselaws. Judicial interpretation lifting of corporate veil by advocate sanyog vyas. Lifting the corporate veil law company business partnership essay introduction. 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. The corporate entity will be disregarded only in exceptional cases. 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 the value of their investment.
Lifting the veil of incorporation under common law and. Discuss the question requires an analysis of whether the parent company a. Nov 18, 20 meaning of lifting of the corporate veil doctrine of lifting the veil. Lifting of corporate veil under the companies act ipleaders. The doctrine of corporate veil lifting began to be disfavored by the courts in this period. Lifting the corporate veil however there had been a fraudulent use of the veil of corporate personality by members and directors. 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. Corporate personality and the veil of incorporation 2. The claimant has prayed for the respondents directorsmembers to pay the decree personally or be committed to civil jail for six months because they have acted dishonestly by giving bouncing cheque and by hiding from creditors by relocating offices to an unknown address. 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.
Lifting the corporate veil, in simple words means disregarding the corporate personality and looking behind the real person who are in the control of the company and where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to take. In doing the same, the courts have evolved the concept of lifting or piercing the corporate veil. It will also verify some common perceptions of the doctrine. Strathclyde regional council, stated that the one situation where a corporate veil could be lifted was whether there are special circumstances indicating that the company is a mere facade concealing the true facts. Lifting or piercing of corporate veil circumstances in which court. The phrase piercing the corporate veil is used to describe the action of a court to hold corporate shareholders and llc owners personally liable for the debts and liabilities of a corporation. Veil lifting question the general reasoning of the court in this area of veil lifting the corporate veil has been confusing and, at times, contradictory. Company as separate legal entity the company as a separate entity was firmly established in the landmark decision in salomon v. 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 from. Lifting or piercing of corporate veil circumstances in. Escorts and beyond lifting the corporate veil lic v. Mar 25, 2020 concept of lifting of corporate veil introduction, company law b com notes edurev is made by best teachers of b com. Lifting of corporate veil with reference to leading cases. Various grounds for piercing of the corporate veil and elements of lifting of corporate veil analyzed through the lens of leading case laws and judgements form the crux of this project report. Dec 2012 when a company registered under the act, all the dealings with the company will be in the name of company, and the members will be disregarded. When the notion of a legal entity is used to defeat public convenience, justify wrong, protect fraud or defend crime, the law will regard the corporation as an association. Company law lifting of corporate veil with reference to leading case shagun singh 15. 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. Once a company is formed and registered under this act, it is a separate legal entity distinct from its members. 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 the corporate veil ankan bose, created on 09 feb 2017 according to the companies act of 20, at the time of its incorporation itself the company is considered as a separate legal entity different from its promoters, directors, members, and employees. Courts generally unwilling rationale constant recognition of a corporate personality promotes stability as otherwise investors and business people would be unable to predict when the corporate form would be respected. In other words, the courts, in compelling situations, ignored all the conceptions of the corporate personality and hold the directors and shareholders personally. Being held liable by lifting the corporate veil the majority of legal systems distinguish the corporate entity wholly from its members with the rationale to separate the companys legal personality from the shareholders as the company is independent and distinct from its shareholders. This document is highly rated by b com students and has been viewed 4623 times. Lifting the corporate veil provisions under the companies act. Courts generally unwilling rationale constant recognition of a corporate personality promotes stability as otherwise investors and business people would be unable to. Lifting the corporate veil refers to the possibility of looking behind the company framework or behind the companys separate personality to make the member liable, as an exception to the rule that they are normally shielded by the corporate shell. 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. The central purpose of this paper is to investigate the bounds of the principle of limited liability. Jun 15, 2016 also the connection between the judicial pronouncements of two separate cases regarding lifting of veil of a corporate entity cannot be ascertained as every courts view on lifting of corporate veil depends on the facts of each case.
Lifting of corporate veil by advocate sanyog vyas youtube. Lifting of corporate veilcase study john vs lipman youtube. The corporate veil is the term given to the imaginary barrier that separates the company from those who direct it and from those who own it. 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. Jan 07, 2015 second, it is not clear from the judgment itself whether the tax authorities advanced the argument regarding lifting the corporate veil. The lifting of corporate veil doctrine in hong kong rate varies in accordance with factors such as the nature of the underlying claims at issue, the number and identity of shareholders in the company, the time when the case was decided, etc. It constitutes the bedrock principle upon which company is regarded as. Apr 16, 2017 the central purpose of this paper is to investigate the bounds of the principle of limited liability. The courts will break through the corporate shell and apply the principle of lifting or piercing the corporate veil.
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 corporate personality slideshare. The phrase piercing the corporate veil describes how shareholders may be held. Disregarding the general rule a corporation is a legal entity distinct from its shareholders by regarding the company as a mere agent or puppet of a controlling shareholder or parent corporation. Lifting the corporate veil piercing the corporate veil citizenship. Act of lifting corporate veil, one of the most controversial subjects in corporate law. 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. The principle is regarded as a curtain, a veil, or a shield between the company and its members, thus protecting the latter from the liability of the former.
Introduction the lifting of corporate veil doctrine remains one of the most difficult areas of hong kong company law. Lifting the corporate veil provisions under the companies. Lifting the corporate veil ppt video online download slideplayer. In common law jurisdictions, the concept of the corporate veil is longstanding. Len sealy and sarah worthington cases and materials in company law 8 th edition. Mar 05, 20 the doctrine of corporate veil lifting began to be disfavored by the courts in this period. The corporate veil can be lifted by the courts if its presence would create a substantial injustice. Under statutory provisions under judicial interpretation 4.
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. A company is a legal person with a separate entity. Corporations are separate entities from their shareholders, and in normal circumstances, if a corporation is sued, the individual shareholders and. Limited liability companies provide huge commercial benefits for businessmen, but even larger headaches for lawyers when they are forced to explain to lay clients how wealthy individuals. There is a dearth of overarching guiding principles for a body of largely incoherent case law. Your suggestion and comments will be appreciated recommended. Normally, they will not be liable for any wrong committed by the company and outsiders cannot look behind the veil to identify these people. Part ii 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. Seperate legal entity lee vs lees air farming company limited explained by advocate sanyog vyas duration. 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. This shows that there is a veil drawn between the company and its members.
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 lifting of the corporate veil implies neglecting the corporate personality and looking for the genuine individual who is in the control of the. Aug 12, 2012 the courts will break through the corporate shell and apply the principle of lifting or piercing the corporate veil. The lifting of corporate veil doctrine in hong kong. 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. 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. Meaning of lifting the corporate veil as a legal term. Concept of lifting of corporate veil introduction, company. To what extent does, and to what extent should, malaysian company law allow the lifting of the corporate veil between a parent company and its subsidiaries. Strategies regarding corporate veil piercing and alter ego. The courts are prepared to disregard the separate legal personality of companies in case of tax evasions or liberal schemes of tax avoidance without any necessary legislative authority. 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.
Principle of lifting the corporate veil there is often talk about how a company is a person in eyes of law. Apr 23, 2016 judicial interpretation lifting of corporate veil by advocate sanyog vyas. Lifting the corporate veil legal definition of lifting the. Definition of lifting the corporate veil in the legal dictionary by free online english dictionary and encyclopedia. Strategies regarding corporate veil piercing and alter ego doctrine. Lifting the corporate veil free download as powerpoint presentation.
One of the main motivations for forming a corporation or company is the limited liability it offers its shareholders. The court will make the members or the controlling persons liable for debts and obligations of the company. A company is an artificial person having separate legal entity, distinct from its members. Separate legal entity means that is a different legal existence to individual members or stockholder who as natural person of company. The philosophy behind the doctrine of lifting of corporate veil the concept of corporate veil is a fundamental aspect of a company law. Corporate veil zimbabwe legal information institute. Company law lifting of corporate veil 5 piercing of corporate veil 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. In this article, ashwini gehlot of institute of law, nirma university discusses lifting of the corporate veil. The company, in the contemplation of law, is a person distinct from the shareholders.
Posted in constitutional law, corporate law, dispute resolution. One of the fundamental principles of company law is that a company has personality that is distinct of its shareholders. Strategies regarding corporate veil piercing and alter ego doctrine july 31, 2018 2. Minimizing the risk of veil piercing and alter ego liability 4.
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