Lifting the Corporate Veil

Introduction

In to render controllers of corporate groups or controlling shareholders individually accountable for the debts of the company , the courts are empowered to lift the veil of incorporation . However , this is drastic and has to be resorted to only under extreme circumstances . As the extant case law clearly indicates , such a course of action is not resorted to as a matter of course . Instances , wherein such activity had been directed against inactive shareholders of public companies , have not come to light . In the main , case law had dealt with instances of

br deliberate distortion of facts . The legislation of the United Kingdom holds liable any person who intentionally conducts company business with the object of defrauding creditors , if that company is shut down

The term lifting the veil of incorporation or lifting the corporate veil is used to refer to the practice of viewing the true nature of a company , subsequent to ignoring its distinct existence in law , under certain circumstances . The constituents of a company and its members are not treated differently , according to this doctrine

The principal distinguishing factor of a company is that it is treated as a separate legal entity that is not only distinct from but also independent of its constituents . This specific property of a company bestows a number of advantages on a company . Although , a company is deemed to be distinct from its members , the fact remains that it is an association of persons , who not only own the entire property of the company , but also enjoy all the benefits that ensue from its commercial activities . The effect of being considered a separate entity under law has the effect of ignoring these true beneficiaries of the company after its formation and legal entity status bestowal

In the normal course of events , this status of a separate legal entity enjoyed by a company is acceded to . In fact , this doctrine of corporate personality of a company forms the basis of the law of corporation Nevertheless , such the benefits accruing from the enjoyment of a status of a separate legal entity cannot be utilized for unlawful business purposes

In the course of settling disputes , the courts are at times , compelled to determine the identity of the persons who really control a company Such instances , transpire when the legal entity of the company is employed for perpetrating acts of a fraudulent nature , indulging in inappropriate behaviour or committing acts that harm public policy

In all such instances , the courts lift the veil of incorporation . Such a measure by the judiciary falls within its discretion and is dependent on the economic , moral and social issues that pertain to the company . As such the courts intervene and dispel the veil of incorporation whenever , the latter is utilized by a company to conceal its malafide acts

Upon incorporation a company becomes a separate entity . It acquires the corporate personality by donning the corporate veil . A company is a separate entity from the shareholders who had formed it . The...