The circumstances which give rise to courts lifting the corporate veil continues to be one of the most hotly debated and most discussed topics in corporate law. According to lord denning in littlewoods mail order stores ltd. For instance, in gilford motor co v horne 14 the defendant was a former director of a company who signed an agreement that he would not solicit his former employers customers. It contains a comprehensive survey of the corporate veil cases in hong kong. To lift or not to lift the corporate veil the unfinished. Group of the companies the problems can be complex. Hence it is very difficult to predict the circumstances in which the corporate veil will be lifted in the absence ofa specific legislation so directing. This article undertakes a comparative study of corporate veil piercing doctrines under u. Lifting the corporate veil law company business partnership essay. What is the corporate veil judicial provisions for. As long as there are adequate assets, the company is liable to pay all its debts without any. Note that it is the members liability and not the companies liability which is limited. Download fulltext pdf the lifting of corporate veil doctrine in hong kong.
Jan 07, 2015 as a result of incorporation, an incorporated company wears a corporate veil and thus acquires the corporate personality, behind which there are shareholders who have formed the company. Understanding the veil of incorporation psf accounting. Piercing the corporate veil under the new companies act. The company, in the contemplation of law, is a person distinct from the shareholders. Lifting the corporate veil provisions under the companies. There has been a great deal of discussion as to the correct word to use in order to describe the process of bypassing the salomon doctrine.
Lifting the veil of incorporation flashcards quizlet. Lifting the veil of incorporation chancery law chronicles. This guideline is alluded to as the veil of incorporation. The court of appeal rejected an unprincipled and broad brush approach and listed some nonexhaustive factors to be considered. 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.
But, 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 to reveal the true form and character of the concerned company. Also, it must be necessary for the court to lift the veil on public policy. Lifting the veil occurs where the courts or law disregard the corporate personality of the company in deserving circumstances. Piercing the veil law exists as a check on the principle that, in general, investor shareholders should not be held liable for the debts of their corporation beyond. As noted by lord denning in littlewoods mail order stores ltd. However, within the companies acts 1963 to 2006 and elsewhere, several instances may now be found of veil lifting, whereby personal liability is imposed on members or directors for the company debts and liabilities.
Jun 12, 20 company law lifting of corporate veil with reference to leading case shagun singh 15. Lifting of corporate veil with reference to leading case shagun singh 15. However, business owners can still be liable for business activities if they failed to follow corporate guidelines, commingled assets or acted recklessly. It carries with it the concept of limited liability which ordinarily flows from the doctrine of corporate personality. An anatomy of the grounds of lifting the corporate veil symbiosis. The veil shall be lifted to prevent the avoidance of recognition by the eyes of equity. The paper examines case law and statutory provisions related to lifting the corporate veil.
Irc, incorporation does not fully cast a veil over the personality of a limited company through which the courts cannot see. Salomon is the judicial authority that enforces the legal personality of corporate entity especially when it has been incorporated. Piercing the corporate veil in confiscation proceedings. This doctrine emphasizes that a company has a separate entity from its. The courts in general consider themselves bound by this principle. Aug 21, 2017 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. Lifting or piercing of corporate veil circumstances in. Subsidiary own and fund money of a business has been held to do so as agent for the holding and parent company. It constitutes the bedrock principle upon which company is regarded as. Concept in the eyes of law, a company is a legal person with a separate entity distinct from its members of shareholders. Apr 08, 2015 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. The main preferred standpoint of incorporation from which all others follow is the separate entity of the organization. One is therefore generally not entitled to go behind or lift this. Lifting the veil of incorporation in confiscation cases.
The veil of incorporation limits the personal liability of corporate directors, officers and employees for actions taken by the business. 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. It constitutes the bedrock principle upon which company is regarded as an entity distinct from. This is, if anything, a growing problem as individuals and their accountants become. As a general rule, be that as it may, the matter of the legitimate person is constantly carried on by, and for the advantage of, a few people. When a shareholder is held personally liable for the actions of the corporation. 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. Also, the courts are always ready to lift the veil of incorporation where such veil tends to be used as a shield contrary to public policy. The classical veil lifting 18971966 saw courts falling back heavily upon the salomon ratio.
Purpose the paper examines case law and statutory provisions related to lifting the corporate veil. The effect of this principle is that there is a fictional veil between the company and its members. As illustrated by the case of knoop no and others v birkenstock properties pty ltd and others fb unreported case no 70952008, 462009 nxusani aj, the shareholders can be. But, in a number of circumstances, the court will pierce the corporate veil or will ignore the corporate veil. The legal rule that a registered company is at law a different person altogether from the subscribers to the memorandum of association and other persons who join the company later on as its members has been modified in instances which have come to be known in company law as lifting the veil of incorporation. Xxxxx the court can use its power to lift the corporate veil if it is necessary to achieve justice, irrespective of the. To offer a full account of the exceptions to the corporate personality doctrine, this paper also.
The members of the company may misuse the corporation veil under its shelter. 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. Lifting the veil of incorporation once a company is formed, the courts usually do not look behind the veil to. Lifting the veil of incorporation, business law and ethics. Oct 02, 2016 lifting the veil for the interest of justice creasey a company can be a facade even though it was not formally incorporated with any dishonest intent. The situation whereby the veil of incorporation is lifted where the company is acting as agent or partner of the controlling or parent company. 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. Veil piercing is the most heavily litigated issue in corporate law, yet legal doctrine in. Lifting the veil of incorporation under common law and statute. Lifting the veil of incorporation lifting the veil of. Lifting the veil of incorporation under common law and.
When the veil of incorporation is pierced or lifted, the court acts to strip away the protective covering of the limited liability presented by the company structure. Jun 27, 2017 assets by piercing the veil of incorporation. The aim of the paper is to explore recent case law in order to determine whether courts have moved. 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. Company law lifting the veil of incorporation part i duration. Lord sumption stated that the veil could only be lifted if there was a legal right against the controller of a company and the companys separate legal personality frustrated that right. It is one of the most widely used doctrines to decide when a shareholder or shareholders will be held liable for obligations of the corporation and continues to be the.
An empirical, comparative and development perspective thomas k. View notes lifting the veil of incorporation from claw 2201 at university of sydney. The house of lords decision in salomon dominated in this period thereby acting as a restraint on veil lifting. 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. By definition, piercing the veil of incorporation is a legal term used in circumstances where shareholders or directors of companies are made. Under section 4 2 b of the companies act in a company limited by guarantee the members undertake to contribute a certain amount to the assets of the company in the event of the company being wound up. The concept of lifting the corporate veil has been regarded by the courts and jurists. The lifting of corporate veil doctrine in hong kong. Piercing the corporate veil in australia melbourne law school. This paper provides an empirical, comparative, and development perspective on the corporate veil doctrine. Piercing the corporate veil, financial responsibility, and. Lord palmerstone, when considering the geographical conundrum in respect of schleswigholstein, famously opined that the question is so.
Ottolenghi, from peeping behind the corporate veil to ignoring it completely 1990 53 m. 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. What is the corporate veil judicial provisions for lifting. Dec 05, 2017 company law lifting the veil of incorporation part i duration.
Piercing the corporate veil refers to treating the rights or liabilities or activities of a company as the rights or liabilities or activities of its shareholders 2 and is a controversial step. Therefore the courts usually do not look behind the veil to inquire why the company was formed or who really controls it. This principle may be referred to as the veil of incorporation. The court of appeal rejected an unprincipled and broad brush approach and listed some. The veil of incorporation ensures that a company is a separate legal entity from its directors and shareholders, thus protecting the personal assets of owners and investors from lawsuits. Michael2 abstract from the age long decision of house of lords in the case in salomon v. Term paper on lifting of corporate veil under judicial. Company formation, preincorporation contracts, characteristics of a company, lifting the veil of incorporation sections 10 to 16, 20 to 25, 182 to 185, 301. In such instances, the veil of incorporation must be lifted to identify the. 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 veil can be pierced only when the company is a mere facade concealing the true facts. The company is treated as in some degree identified with its members or directors or. Although in law the company has an independent personality, it is an artificial person and hence, behind the corporate curtain, there are natural.
Courts have also ignored the corporate veil where a company is a sham designed to commit fraud or avoid an existing contractual obligation. 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. Corporation, veil of incorporation, lifting the veil, separate legal. The law recognizes that a company is a separate legal entity distinct from its shareholders. From peeping behind the corporate veil, to ignoring it. This separation is referred to as the veil of incorporation. Authorities in which the veil of incorporation has been lifted have not been of such consistency that any principle can be adduced. 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. Company law lifting of corporate veil with reference to leading case shagun singh 15. 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. Pdf the lifting of corporate veil doctrine in hong kong. While poca is detailed in many respects, the law surrounding this subject has been defined by case law and remains stubbornly obscure. Veil of incorporation serves to encourage rather than restrict.
Indeed, just the fact of breach of duty is sufficient to justify lifting the veil ord the ca overruled creasey held, in legitimate business transaction the veil will not be lifted. This separation of the corporation and its members, is commonly, referred to as the veil of incorporation. Jun 15, 2016 the effect of this principle is that there is a fictional veil between the company and its members. 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. In such instances, the veil of incorporation must be lifted to identify the persons responsible and make them liable.
Aug 31, 2015 the occurs will lift the veil of incorporation if the veil has been misused to protect the owners or management of a company such that creditors and third parties are disadvantaged. In adeyemi v lan and baker nig ltd, the court held that there is nothing sacrosanct about the veil of incorporation. But gradually, the courts began to lift veil of incorporation so as to tackle certain identified exceptional circumstances. Company law lifting the veil of incorporation youtube. The occurs will lift the veil of incorporation if the veil has been misused to protect the owners or management of a company such that creditors and third parties are disadvantaged. 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. 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 for the purpose of holding them liable. 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. Xxxxx the court can use its power to lift the corporate veil if it is necessary to achieve justice, irrespective of the legal efficacy of the corporate structure under consideration. Common law countries usually uphold this principle of. Lifting of corporate veil under the companies act ipleaders. Usually a corporation is treated as a separate legal person, which is solely. Dec 03, 2010 company law lifting the veil of incorporation due to fraud. It a wellaccepted principle of english law that a duly formed and registered limited company is a separate legal entity from those who are its shareholders and directors.