Corporate Veil
The Corporation as a Person
A Visual Guide to Corporate Personality Under Company Law
A Separate Legal Entity
Upon incorporation, the Companies Act grants a company its own legal identity, entirely distinct from the shareholders who own it and the directors who manage it. This foundational principle, cemented in the 1897 case of Salomon v. A. Salomon & Co. Ltd., transforms a business into an artificial “person” in the eyes of the law.
The company has its own rights and obligations.
The Pillars of Corporate Personality
This separate legal status endows a company with powerful characteristics that enable it to function as a robust and stable entity for commerce and investment.
Lifting the Corporate Veil
While the principle of a separate entity is strong, it is not absolute. Courts can disregard this separation to prevent fraud or abuse and hold the individuals in control personally accountable. This is known as “piercing the corporate veil.”
Statutory Provisions
The Companies Act itself specifies situations where the veil is lifted and personal liability is imposed.
- ➔ Misrepresentation in Prospectus: Directors & promoters held liable for untrue statements.
- ➔ Failure to Return Application Money: Directors held liable if minimum subscription is not met.
- ➔ Fraudulent Conduct of Business: Anyone knowingly party to fraud during winding-up is liable.
- ➔ Misdescription of Company Name: An officer signing a contract with an incorrect name is liable.
Judicial Interpretations
Courts have established precedents to lift the veil based on the facts and circumstances of a case.
- ➔ To Determine Company Character: To check if a company is controlled by enemy aliens in wartime.
- ➔ Prevention of Fraud: When the corporate structure is used to evade legal obligations.
- ➔ To Protect Revenue: If the company is merely a device for tax evasion.
- ➔ Company as an Agent or Alter Ego: When a company is a sham acting on behalf of its parent.
