Piercing the veil is one of the most discussed and litigated doctrines in all of corporate law. A company has a corporate personality distinct from its members. From the juristic point of view, it is a legal person distinct from its members. This is the principal laid down in Salomon v. Salomon & co. ltd., (1897) A.C. 22].The courts did this to in relation to a one person member company. The principal is commonly referred as “veil of incorporation” The courts were bound by these principals but they realised exceptions to the rule. This happened due to human inventiveness which started using the veil of corporate personality deliberately for fraud and improper conduct. The courts started to lift the fictional veil between the company …show more content…
These categories are probably not exhaustive. Under Indian Law,The Companies Act 1956 itself provides provisions for the lifting of corporate veil.These generally are exceptions for the companies to be regarded as a separate legal entity. The concept of limited liability ceases to exist and the individual members/directors will be made liable for certain transactions. The statutory provisions are as follows: 1. Reduction of membership below statutory minimum (Section 45): This section provides that if the number of member of a company is reduced below 7 in the case of public company or below 2 in the case of private company and the company continues to carry on the business for more than 6 months, while the number is so reduced, every person who knows this fact and is a member of the company is severally liable for the debts of the company contracted during that time. 2. Improper use of name (Section 147): Under sub-section (4) of this section, an officer of a company who signs any bill of exchange, hundi, promissory note, cheque wherein the name of the company is not mentioned in the prescribed manner, such officer can be held personally liable to the holder of the bill of exchange, hundi
671 [2d Dept. 2010], internal citations omitted). "Additionally, the corporate veil will be pierced to achieve equity, even absent fraud, [w]hen a corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator 's business instead of its own and can be called the other 's alter ego '" (Id. at 671-672, internal citations omitted). "[A] party seeking to pierce the corporate veil must establish that (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in the plaintiff 's injury" (Superior Transcribing Serv., LLC v Paul, 72 AD3d 675, 676 [2d Dept. 2010], internal citations omitted).
According to this section every member or creditor, including debenture holder, of each of transfer or companies before amalgamation shall have, as nearly as may be the same interest in or rights against the transferee company as he/she had in the company of which he/she originally was a member or creditor and in case the interest rights of such member or creditor in or against the transferee are less than his/her interest rights in or against the original company, he shall be entitled to compensation to that
The legal decision to treat the rights or duties of a corporation as the rights or liabilities of its directors is called piercing the corporate veil or lifting the corporate veil. A corporation is treated as a separate legal person for the sole responsible of debts incurred. Corporations are
Upon a showing of good cause by a plaintiff, a court can decide to pierce the corporate veil, giving a third party plaintiff access to the personal assets of a company’s shareholders. This is also referred to as
“Piercing the corporate viel” refers to the judicially imposed exception to this rule by which courts disregarded the separateness of the company and consider a shareholder responsible for the company’s action as if it were the shareholder’s own. A fundamental rule of corporate law is that shareholders in an organization are not liable for the obligations of the enterprise beyond the capital that they contribute in exchange for their shares.
This is not an easy burden to meet. In determining whether or not a third party has met this burden, a court will consider several factors, including: the absence of business records, undercapitalization of the business, failure to observe mandatory formalities, fraudulent representation by shareholders and/or directors, the promotion of fraud or illegal activity, payment of personal obligations by the corporation, commingling of assets, conduct that manipulated or ignored the corporate form, or is otherwise found to be an “alter ego” of the corporate mangers or shareholders. It is not necessary that the third party make a showing of the existence of all those factors in order to support a finding that the corporate veil should be pierced. Once pierced, or lifted, courts can look beyond the independent personality of a corporation and hold individual shareholders, board members, or employees liable for the obligations of the corporation. In deciding whether the burden has been met, courts will weigh two competing interests. The first being fairness, or the desire to reach an equitable outcome, and the second being societies interests in upholding the principle of limited liability.
Ian M Ramsay Harold Ford Professor of Commercial Law and Director, Centre for Corporate Law and Securities Regulation The University of Melbourne David B Noakes Solicitor, Allen Allen & Hemsley, Sydney, and Research Associate, Centre for Corporate Law and Securities Regulation The University of Melbourne There is a significant amount of literature by commentators discussing the doctrine of piercing the corporate veil. However, there has not been a comprehensive empirical study of the Australian cases relating to this doctrine. In this article, the authors present the results of the first such study. Some of the findings are (i) there has been a substantial increase in the number of piercing cases
When one is operating a large corporation, things can go wrong. Many times even large business can fall into bankruptcies or have other legal suits thrown against them. Sometimes a business must also take risks that don’t always turnout in their favor. One would never want a failed business endeavor to hinder them and possibly their family. This is why, it is always nice to have a policy in place that can protect you from the liability of business debts and other obligations that can arise from operating the corporation. This protection is known throughout the business as the corporate veil. The corporate veil exists, mainly to protect the owners of a corporation from unfortunate circumstances. However, there are those who try to take advantage
The Doctrine of Separate Personality has been an important aspect in the Company Law for a long time. It had been discussed heavily in the Salomon v Salomon & CO (1987) which was the leading case for this matter (Dine and Koutsias, 2009, p.17). In fact, it may be the most well-known case in the company law. Company law is simply any laws that related to organizations and businesses in the UK. However, the one that established the doctrine of separate personality is not from Salomon case, it simply permitted its application to one-man and private companies (Kelly, Hammer and Hendy, p.356). Under the separate personality is said to be a ‘veil’ that separated between the owners and the business. This veil can actually be pierced whether under a companies legislation or common law. Thus, in this essay there will be discussions about the matter of separate personality and lifting the veil of incorporation with reference of the leading case Salomon v Salomon & CO and other cases that are related.
Outline and critically discuss the statutory and common law examples of `lifting the veil` on corporate personality.
The veil of incorporation state the company is a separate legal entity from its members such as shareholders, directors and employees. (Lawyr.it, 2014) Separate legal entity defines a company can employ its own members, limited liability and ability to hold property in its name. Normally, the courts would not look behind the veil of incorporation because it is separate legal entity.
There is no clear framework of the rules that would cover the contingencies of a ruling to pierce the corporate veil Idoport Pty Ltd v National Australia Bank Ltd. The corporate Veil usually protects owners and shareholders from being held liable for corporate duties. Yet again a decision made by the court to lift that veil and would place the liability on shareholders, owners, administrators, executives and officers of the company without ownership interest. The purpose of this essay is to conduct an analysis on the concept of lifting the corporate veil and to review the different views on its fairness and equitability to present a better understanding of the notion, the methods used was throughout researching the numerous scholars views on the subject, case law and statutes examples, and the evidence provided by the empirical study of Ramsay & Noakes. When we discuss the lifting the corporate veil the first case that pops out is the case of Salomon V A. Salomon & Co Ltd, since the decisions of applying the corporate veil were first formed as a consequence of this case. The idea covers all of company law and distinguishes that a company is a separate legal entity from its members and directors. Furthermore, spencer (2012); have indicated that one of the core principles that followed the decision in Salomon v Salomon was the wide acceptance one man company’s. However In order to form a
There are two main problems regarding situations and necessity of lifting the corporate veil. At present, there are five circumstances that the UK courts can go behind a corporate structure in order to lift the corporate veil, namely evading existent obligation, agency relationship, single economic unit, the façade concealing the true fact and doing justice to the fact. However, there is no standard rule for these circumstances as the courts usually change their positions in each case. For example, although there are two similar cases, the courts sometimes adjudicate differently by lifting the corporate veil in one case but not in another. It
Some of the main effects of the Companies Act on private companies are: an individual and simplified model of Articles of Association; individual requirements for accounting and reporting; no requirement for a company secretary; no requirement for an annual meeting; and simplified rules about share capital, (companieshouse.gov.uk, 2014). The key benefits of the Companies Act for shareholders
Salomon is a shoe manufacturer. He runs his business as Sole Proprietorship with name “Salomon & Co Ltd.” After he married and had five children, he decided to register his business