But the theory cannot be pushed to unnatural limits. Lifting or piercing of corporate veil circumstances in. 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 companys debts and other obligations. Lifting the veil of incorporation under common law and statute. Len sealy and sarah worthington cases and materials in company law 8 th edition.
Term paper on lifting of corporate veil under judicial. 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. This will usually, but not inevitably, lead to liability being imposed on another person, perhaps in addition to the corporate vehicle. The doctrine of lifting the veil can be understood as the identification of the company with its members.
Seperate legal entity lee vs lees air farming company limited explained by advocate sanyog vyas duration. Salomon v salomon involved the principle of separate corporate personality. 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. Start studying incorporation and lifting the corporate veil cases. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it incurs and the sole beneficiary of. There are situations where the court will lift the veil of incorporation in order to examine the realities which lay behind. Reasons for lifting the veil of incorporation company. This is regarded in a loose sense as a case of lifting the veil because a holding company is obliged to incorporate into its balance sheet the assets and liabilities of the subsidiary company as if they were its own assets and liabilities.
This paper attempts to stream line the underlining principles adopted by common law, case law and statutes to pierce the veil of incorporation like where the. The courts have pierced the corporate veil when it feels that fraud is or could be perpetrated behind the veil. Michael2 abstract from the age long decision of house of lords in the case in salomon v. Under traditional corporate rules, a subsidiary corporations liability. 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. The doctrine of separate legal personality, also known as the veil of incorporation, seeks to protect individuals from liability. Lifting of corporate veil by advocate sanyog vyas duration. Removal of separate legal personality and the veil of. Piercing the corporate veil wex us law lii legal information. When the veil of incorporation is pierced or lifted, the court acts to. A good lifting the veil meaning is a company that loses its liability protections, and this could apply to corporations or llcs. Courts may pierce the corporate veil in taxation or bankruptcy cases, in addition to cases involving plaintiffs with contract or tort claims.
Income tax act 1967 the corporate veil is consistently lifted in the area of taxation. Lifting the veil of incorporation in confiscation cases. 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. The court in that case held that a plaintiff needs to prove that a shareholder used the corporation as his.
Meaning of lifting of the corporate veil doctrine of lifting the veil. Lifting the veil of incorporation chancery law chronicles. This paper aims to compare and critically examine the circumstances under which veil piercing takes place against the objectives of incorporation. The concept lifting the veil of incorporation essay. The cases in which the corporate veil has been lifted fall into four main. Salomon is the judicial authority that enforces the legal personality of corporate entity especially when it has been incorporated. 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. In those cases there was an issue of transferring contractual obligations the same way. Lifting the corporate veil legal definition of lifting the. Today, shareholders can be held liable in the case of an interference destroying the corporation. Company law lifting of corporate veil with reference to leading case shagun singh 15. Lifting of corporate veil with reference to leading cases.
Where breach of fiduciary duty was alleged there was a powerful argument of principle for lifting the corporate veil, where the facts required it, to include those in or behind a company who were in reality the persons whose trust in and reliance on the fiduciary might be confounded. Taxat times tax legislations warrant the lifting of the corporate veil. The translation of case and provision is unofficial translation, done by the writer himself. The corporate personality and the possibility to lift the veil legavox. The grounds under which a court will lift or pierce the veil of incorporation is where a company may have been formed as an attempt to avoid a legal obligation or liability, as in the case of. 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. He further submitted that for the corporate veil to be lifted several things should be proved. Being an artificial person, it company cannot act on its own, it can act only by natural persons. An llc or corporation entails a legal entity thats separate from its owners. 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 corporation is entitled to a minimum of equitable funds. The court in such cases shall break through the corporate shell and apply the principle of what is known as piercing or lifting of corporate veil. Thus lifting of corporate veil refers to the possibility of looking behind the companys framework or behind the companys separate personality to make the members liable, as an exception. He submitted that the respondent and her directorsshareholders are distinct and separate legal persons. Company, juristic person, veil of incorporation, common law, statute, south. It constitutes the bedrock principle upon which company is regarded as.
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. Meaning of lifting or piercing of the corporate veil. The house of lords in the salomon case affirmed the legal principle that. From peeping behind the corporate veil, to ignoring it. One of the grounds for lifting of the corporate veil is fraud. The articles of incorporation typically must contain 1.
This will mostly be when people have tried to use the incorporation to evade a legal obligation or liability. The court of appeal rejected an unprincipled and broad brush approach and listed some nonexhaustive factors to be considered. These exceptions are described as lifting the veil of incorporation. The concept of lifting the corporate veil has been regarded by the courts and jurists. 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. The paper examines case law and statutory provisions related to lifting the corporate veil.
Lifting the veil of incorporation under common law and. Where a court determines that a companys business was not conducted in. The courts will not allow the solomon principal to be used as an engine of fraud. Wachenje, counsel for the respondent opposed the motion because it seeks to lift the corporate veil of the judgement debtor. Has the courts attitude to lifting the veil changed in recent years. This doctrine emphasizes that a company has a separate entity from its. Lord denning in littlewoods mail order stores ltd v irc noted that the doctrine in salomon v salomon has to be watched very carefully courts can often draw aside the veil to see what really lies behind. For example, in the case of petrodel resources ltd and others v prest. Sometimes this is expressly authorized by statuteand sometimes the court will lift its own volition. Piercing the corporate veil for environmental torts in the united. It follows that in this case it was pierced the veil of incorporation on the. 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.
Class 5 company law lecture for ca ipcc, cwa and cs lifting corporate veil. According to the salomon case, by incorporation, the company. Incorporation and lifting the corporate veil cases. In case of avoidance of welfare legislation the courts lift the corporate veil to get behind the smoke screen and discover the true state of affairs. Lifting the veil of incorporation is rare in the uk. 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 countries examined are the united kingdom, singapore and the united states which are common law jurisdictions, as well as the civil law countries of china and germany. 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. 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 occurs where the courts or law disregard the corporate personality of the company in deserving circumstances. The corporate veil in the case of companies incorporated under the. Our paper aims to compare and critically examine the circumstances under which veil piercing takes place against the objectives of incorporation. The principle of lifting the veil of incorporation is often used for transition tort liability from the company to its owner.
Critically evaluate, with reference to relevant case law and statute, how far this statement accurately reflects the current law relating to lifting the veil of incorporation. Carlton is a leading case on piercing the corporate veil. However, it is important that there remain exceptions to this doctrine in order to preserve the interests of the public. Study flashcards on corporate legal personality and lifting of the veil at. Some texts attempt to explain veil lifting by categories. 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.
Normally, they will not be liable for any wrong committed by the company and outsiders cannot look behind the veil to identify these people. In adeyemi v lan and baker nig ltd, the court held that there is nothing sacrosanct about the veil of incorporation. 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. This means that owners cannot be held liable for any business debts that a. Definition of lifting the corporate veil in the legal dictionary by free online english dictionary and encyclopedia. However, the courts have not always applied the separate legal entity principle as the salomon case.
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. Understanding the veil of incorporation psf accounting. Doctrine of lifting the veil received further development in the case antonio gramsci v stepanovs 2011 nyombi 2014. However, there are still circumstances in which the courts will allow a request to lift the veil. The corporate veil is vital for the legitimate use of the corporate structure and the protection of shareholders and directors and thus, by its very existence, promotes the playing field for. The courts also lift the veil where a company is a mere cloak, which means to disguise or pretend. The paper does not cover the statutory provisions for lifting of corporate veil. 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.
An anatomy of the grounds of lifting the corporate veil. Lord palmer simply enumerates special cases in which the veil has been lifted. Piercing the corporate veil and fraud this article summarises the principles by which a court may pierce the corporate veil in cases of fraud in light of recent case law. Corporate legal personality and lifting of the veil flashcards. Lifting the veil can be used to impose liability upon the shareholders or for other purposes, such as ascertaining appropriate jurisdiction. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Lifting the veil occurs where the courts or law disregard the corporate personality. A reassessment of the fraud exception jennifer payne if students of company law know just one case, that case will be salomon v. Company law lifting the veil of incorporation due to fraud company law application of section 208 of cama evidence proof of special damages the consequences of recognizing the separate personality of a company is to draw a veil of incorporation over the company.