Lifting the veil of incorporation under common law and statute. Lifting the veil of incorporation under common law and statute chrispas nyombi school of law, university of essex, colchester, uk abstract purpose the paper examines case law and statutory provisions related to lifting the corporate veil. 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 the corporate veil under judicial interpretation. Piercing the corporate veil in taxation matters is an outcome of judicial decisions. Let us now discuss the grounds on which the corporate veil can be lifted.
Thus, the concept of piercing or lifting the corporate veil holds significance. In australia, there has been similar judicial support for the separate entity. A corporate veil may be pierced either through statutory provisions or by judicial interpretation. It also protects the shareholders from being held personally liable for. Piercing the corporate veil under the new companies act. Lifting of corporate veil under company law an analysis. Escorts ltd, stated, there are certain circumstances under which corporate veil may be lifted can be categories broadly into two following heads. Taxat times tax legislations warrant the lifting of the corporate veil. Lifting the veil occurs where the courts or law disregard the corporate personality of the company in deserving circumstances.
The corporate veil is generally lifted under the following circumstances. Lifting of corporate veil under the companies act ipleaders. Corporate personality and lifitng of the corporate veil. It continues to be one of the most litigated and most discussed doctrines in all of corporate law. Corporate veil and lifting of corporate veil judicial interpretation. English case law on piercing the corporate veil 42. Lifting of corporate veil of company under company law.
In what circumstances will the cayman courts lift the. The history of the corporate veil doctrine in britain transparently lacks in developing a systematic approach regarding the corporate veil problem. Judicial interpretation lifting of corporate veil by advocate sanyog. The circumstances under which the courts may lift the corporate veil may broadly be grouped under the.
Approach of the uk court in piercing corporate veil by. A company is treated as if its a human of its own kind. The courts justification for lifting or piercing the corporate veil in cases involving category i situations is to be found in the policy of the statute or the intention of the parties to the contract e. Where the device of incorporation is used for reducing the amount to be paid by way of bonus to the workmen, the supreme court can upheld the lifting of the veil to look at the real transactions. In addition, in my opinion, the use of the word unconscionable highlights the courts conservative approach as opposed to the common law position, which was applied conservatively. The situation in which the courts may opt for lifting the corporate veil can be grouped under two heads, being statutory provisions and judicial interpretations. The english courts have been often asked to disregard the separate legal. The act provides for certain cases in which the directors or members of the company may be held personally. Circumstances in which courts may lift the corporate veil. Meaning of lifting or piercing of the corporate veil. Piercing the corporate veil unconscionable abuse under. Corporate veil and lifting of corporate veil judicial. An illustration of the conceptual interpretation of limited liability versus lifting the veil.
The paper does not cover the statutory provisions for lifting of corporate veil. In adeyemi v lan and baker nig ltd, the court held that there is nothing sacrosanct about the veil of incorporation. Principle of lifting the corporate veil there is often talk about how a company is a person in eyes of law. The veil of incorporation can be lifted in according to situation provided under statutory provision and by judicial interpretation under the. Lifting or piercing of corporate veil circumstances in. After that the court will make the company and its members liable for any breach of contract. The most fundamental principle of company law is corporate personality. Therefore, the salomon principle remains an important part of corporate law today. 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. The three justifications for piercing the corporate veil.
Lifting of the corporate veil means disregarding the corporate personality and looking behind the real person who are in the control of the company, 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. The doctrine of corporate veil lifting began to be disfavored by the courts in this period. The courts will break through the corporate shell and apply the principle of lifting or piercing the corporate veil. Term paper on lifting of corporate veil under judicial. 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. Introduction the lifting of corporate veil doctrine remains one of the most difficult areas of hong kong company law. 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. Judicial provisions or grounds for lifting the veil.
Law will lift the corporate veil under statutory provisions under judicial interpretation 6. The corporate veil has been lifted by the courts to determine the enemy character of a company. The main goal of the doctrine of lifting of corporate veil is to ensure that the persons acting fraudulently while hiding behind the shield of separate legal entity of a company, are punished for their acts. Lifting the veil of incorporation flashcards quizlet. Reverse piercing of corporate veil is one curious development by the american courts stretching the theory to meet more equitable needs. In this case horne was appointed as a managing director of the plaintiff company. Corporate veil and corporate law 2055 words bartleby. Judicial interpretation lifting of corporate veil by. First, piercing the corporate veil is used as a tool of statutory interpretation in the sense that piercing the corporate veil is done in order to bring corporate actors behavior into conformity with a particular statutory scheme, such as social security or state unemployment compensations schemes. However, there are several exceptions to this principle. In another landmark decision of the supreme court in new horizons ltd. Company law lifting of corporate veil with reference to leading case shagun singh 15.
The presentation deals with the grounds on the basis of which corporate veil of a company can be lifted and the approaches adopted by the court to lift the veil and includes lifting of the veil under statutory provisions in the companies act, 20 and under judicial interpretation along with case laws. Company, cooperation, judicial interpretation, corporate veil, members. 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. There has not been a single indian case wherein a court has inflicted a members personal liability on corporation assets by reversely lifting the veil. Introduction to lifting of corporate veil the corporate veil is a concept which provides that the personality of a company has to be treated separately from that of its shareholders. What is the corporate veil judicial provisions for. Lifting of corporate veil visavis the determination of enemy character. In this background it is right to look upon in what manner the court lifting of the veil under this ground can be summed up that, in sri lanka the commercial high court vested the jurisdictions to adjudicate of company matter includes the lifting the veil, and the companies act section 87 1 recognized the separate legal personality and the.
Lifting of corporate veil black laws dictionary defines piercing of corporate veil as follows. 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 company, in the contemplation of law, is a person distinct from the shareholders. Courts may now also have a wider discretion to pierce the corporate veil under s 209 of the act compared to their common law discretion cassim et al op cit at 58. Lifting of corporate veil with reference to leading cases. The authors shall also discuss its history and subsequent evolution and the various approaches in form of theories which the courts have adopted while deciding whether or not to pierce the corporate veil. The lifting of corporate veil doctrine in hong kong. Lifting of corporate veil under judicial interpretation. Ltd 1 under statutory provisions, 2 under judicial interpretations. Consideration must, however, be given to the fact that piercing the veil is an exceptional remedy that must be used cautiously. The court will make the members or the controlling persons liable for debts and obligations of the company. In terms of the new companies act, the wording of s 20 supports the conservative approach followed under the common law concept of piercing the corporate veil. Categorises judicial veil lifting as peeping where done to get member information. Lifting of corporate veil or disregarding of the corporate personality is common buzz in the modern corporate arena.
In hare v commissioner of customs and excise,17 it was held that the lifting of corporate veil is. The corporate cover obviously can be punctured when the corporate personality is seen to be against equity, comfort and enthusiasm of the wage or worker or against public interest. When there is no entity separate from members, the court will pierce the corporate veil and take action. In these cases courts lift the corporate veil to make members liable for the actions of the company. Pdf approach of the uk court in piercing corporate veil. Lifting piercing the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. Union of india,7 the court observed that the corporate veil may be lifted and the independence of the corporate entity disregarded, in cases where the principle of corporate personality is flagrantly opposed to justice, convenience, or in the interest of revenue. Besides companies act, 20, certain provisions of incometax act and foreign exchange regulation act, 1973 also enables the lifting of corporate veil. The aim of the paper is to explore recent case law in order to determine whether courts have moved. Though initially court using the principle and the concept of separate entity and a district corporate personality. Judicial interpretation lifting of corporate veil by advocate sanyog vyas. It constitutes the bedrock principle upon which company is regarded as.
Lifting the corporate veil under national interest in sri. Lifting of the corporate veil means disregarding the corporate personality and looking behind the real person who are in the control of the company. Lifting up the corporate veil legal services india. 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.
A company acquires enemy character if it is controlled by alien enemies. The principle of corporate veil as a concept got evolved post salomon under common law. 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. The conditions under which the courts may pierce through the corporate veil can be classified under the following two heads. The paper only deals about lifting of corporate veil in general and the instances in which court can life it. Corporate veil and lifting of corporate veil company lawlecture 2 lifting piercing the corporate veil is a legal decision to treat the rights or. Principle of lifting the corporate veil legal service india.
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