Lifting of Corporate Veil (Piercing the Corporate Veil) By a fiction of law, a company is seen as a distinct entity separated from its members, but in reality, it is an association of persons who in fact the beneficial owners of the company and its corporate property. 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 incorporation of a company creates a separate “person” in law. The corporate veil can be lifted as it is not permanent – From the juristic point of view, a company is a legal person distinct from its members as was seen in [Salomon v. Salomon and Co. Ltd. (1897). Strictly, a company has no particular definition but section 3(1) (i) of the Companies Act attempts to provide the meaning of the word in context of the provisions and for the use of this act. 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. Consequently, a company’s liabilities are its own, not those of its shareholders. Lifting the Veil of Incorporation: The separate legal of a corporate entity personally is viewed as a veil of incorporation, which prevents outsiders taking legal action against company members, even though the outsiders can ascertain the identities of those members and the number of shares that they hold. 865 0 obj <>stream there is great reluctance by the detailed analysis of veil-piercing cases and policy. Lifting the Veil of Incorporation. COMPANY LAW LIFTING OF CORPORATE VEIL WITH REFERENCE TO LEADING CASE Shagun Singh 15.04.2013 NATIONAL UNIVERSITY OF RESEARCH AND STUDY IN LAW 2013 INTRODUCTION Corporate personality has been described as the ˜most pervading of the fundamental principles of company law [1]. It cannot act on its own, it can act only through natural persons i.e. The effect of this Principle is that there is a fictional veil between the company and its members. Legal fiction or fictio juris is a device by which law deliberately departs from the truth of things whether there is any sufficient reason for the same or not. But gradually, the courts began to lift veil of incorporation so as … endobj The ‘Classical Veil Lifting’ (1897-1966) saw courts falling back heavily upon the Salomon ratio. <> h�b```�"�9|����� The lifting of corporate veil doctrine remains one of the most difficult areas of Hong Kong company law. 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. endobj From the juristic point of view, a company is a legal person distinct from its members [Salomon v. Salomon and Co. Ltd. (1897) A.C 22]. reasons for lifting the veil of incorporation circumstances when the veil is lifted are haphazard and difficult to categorize. THE VEIL OF INCORPORATION In law, there is a metaphorical veil which conceals the incorporators, members, directors, share-holders, debenture holders and other persons connected to a limited liability company. 338. Lifting of Corporate Veil (Piercing the Corporate Veil) By a fiction of law, a company is seen as a distinct entity separated from its members, but in reality, it is an association of persons who in fact the beneficial owners of the company and its corporate property. They will just treat the members and the company as a separate legal entity. There are two situations when the court will lift the veil of incorporation. e veil of incorporation is thus said to be lifted. The courts, in general, consider themselves bound by this principle. Lifting the veil of incorporation is rare in the UK. <> In Adeyemi V Lan and Baker (Nig) Ltd, the court held that there is nothing sacrosanct about the veil of incorporation. This principle may be referred to as the ‘Veil of incorporation’. History of Veil of Incorporation The veil of incorporation concept was adopted back in 1897. Incorporation by registration was introduced in 1844 and the doctrine of limited liability followed in 1855. A STUDY ON LIFTING OF CORPORATE VEIL WITH REFERENCE TO CASE LAWS 1P. The veil of incorporation limits the personal liability of corporate directors, officers and employees for actions taken by the business. VH�o��f�4iލլ!Ε�O5(�M=����l6�7��Av�"���Mi�a�a�0�0J5��h��|��+j� This will mostly be when people have tried to use the incorporation to evade a legal obligation or liability. Doctrine of “lifting the veil” received further development in the case Antonio Gramsci v Stepanovs (2011) (Nyombi 2014). Lifting of the corporate veil means disregarding the corporate personality and looking behind the real person who are in the control of the company. Consequently, a company’s liabilities are its own, not those of its shareholders. There is a dearth of overarching guiding principles for a body of largely incoherent case law.' The spirit of Tax-based Veil Piercing is to reduce instances of tax-avoidance that are facilitated by incorporation. The principle of “lifting the veil of incorporation” is often used for transition tort liability from the company to its owner. In those cases there was an issue of transferring contractual obligations the same way. endobj 826 0 obj <> endobj 1 The doctrine has evolved incrementally on a casuistic basis as a means of avoiding injustices generated as a result of the uncompromising decision of The corporate veil separates the company from its shareholders. The process of looking behind the veil of incorporation is what is known as lifting the veil. This article at first introduces to the readers the concept of “Veil of incorporation”, then it explains the meaning of the term-‘Lifting 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 case-laws. However, there are still circumstances in which the courts will allow a request to lift the veil. Corporate personality and piercing (or lifting) the veil of incorporation tends to be a popular topic for exam questions, and can also connect with most other topics in com-pany law. endstream endobj 827 0 obj <>/Metadata 78 0 R/PageLayout/OneColumn/Pages 820 0 R/StructTreeRoot 368 0 R/Type/Catalog>> endobj 828 0 obj <>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI]>>/Rotate 0/StructParents 0/Type/Page>> endobj 829 0 obj <>stream This is, if anything, Subsequently in 1897 in Solomon v.Solomon & Company the House of Lords effected these enactments and cemented into English law the twin concepts of corporate entity and limited liability. <> That particular issue has been brought into focus recently by the Court of Appeal’s decision on 20 June 2012 in VTB Capital v … In turn, a protective “veil” of sorts is cast over the true controllers of the company. Lifting of Corporate Veil: A company is an artificial person is clothed with a corporate veil. 1 0 obj It states: ‘a company means a company formed and registered under this Act or an existing company as defined in section 3 (1) (ii).’ The company must be registered under the Companies Act for it to become an incorp… It was called the era of early experimentation from 1897 to 1966, in which the courts experimented with various approaches to … referred to as lifting or piercing the veil of incorporation. h��Xmo�6�+��a�������Z��$]���9B"̱[���;��iY��P4O��xG�;�JN(�Rɠ���"�i�5�JBm�rjK��P;b�+J��v�9N��H� |YΝ�J��**HU U�]Y�,Ey�hg`���P��j��.͉a�h�Z����\y��Z�Z��`}��Ey�E�Gy~ ������*�狻jQ~ ��4|���ޖ�D�����U5iFR��i��E The landmark judgment of Salomon v. Salomon and Co. Ltd. recognised the principle of separate legal entity of company which says that a company has a separate existence from its members. veil of incorporation as it was specifically expressed in the so called Salomon v A Salomon & Co Ltd decision. LIFTING THE CORPORATE VEIL Meaning of the doctrine: Lifting the corporate refers to the possibility of looking behind the company’s framework (or behind the company’s separate personality) to make the members liable, as an exception to the rule that they are normally shielded by the corporate shell (i.e. endstream endobj startxref The concept of ‘lifting the corporate veil’ has been regarded by the courts and jurists. It constitutes the bedrock principle upon which company is regarded as … The veil of incorporation is the cornerstone of the corporate law in Common law countries so it is undoubtedly an issue of significant importance in order to proceed with the analysis of the “lifting” of corporate veil in Before dealing with the lifting of corporate veil it is pertinent to define what the meaning of a company is. Lifting of the corporate veil. Shanthini ,2MS. %���� %PDF-1.5 %���� <>/ExtGState<>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 7 0 R/Group<>/Tabs/S>> Lifting the veil occurs where the courts or law disregard the corporate personality of the company in deserving circumstances. Lifting the veil of incorporation or piercing the corporate veil means the judicial act of imposing personal liability or otherwise immuned corporate officers, d irectors or shareholders Abuse of the Separate Legal Personality Separate Legal Personality. The doctrine which sanctions the piercing of the veil of incorporation undoubtedly represents one of the most prominent contributions which the common law has made to UK company law. 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. That is, the company has a corporate personality which is distinct from its members. *� 7O&�| ����`�YX�� L � ��H � ��a� through the Directors. where the courts are prepared to lift the „mask‟ or „veil‟ of incorporation and look at what has really been going on behind the scenes in the company. LIFTING, PIERCING AND SIDESTEPPING THE CORPORATE VEIL James Wibberley, Guildhall Chambers & Michelle Di Gioia, Gardner Leader 1. However, the courts have not always applied the separate legal entity principle as the Salomon case. 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; see, for example, S. Ottolenghi, “From Peeping behind the Corporate Veil to Ignoring it Completely” (1990) 53 M.L.R. Lifting the veil of incorporation: Details: The law recognizes that a company is a separate legal entity distinct from its shareholders. where the courts are prepared to lift the „mask‟ or „veil‟ of incorporation and look at what has really been going on behind the scenes in the company. The principle of “lifting the veil of incorporation” is often used for transition tort liability from the company to its owner. This is, if anything, �t#�I������ Z���m�Ѯ���IF~�߇� @���b�E��A{^{lx�Y�VM_ �.���xZ�ў��m�s�ý�=ن= ��\.M�� n�~����_���C� �fX᫆�����/ v2��t�m��9 �@ Lifting the Veil of Incorporation: The separate legal of a corporate entity personally is viewed as a veil of incorporation, which prevents outsiders taking legal action against company members, even though the outsiders can ascertain the identities of those members and the number of shares that they hold. The veil of corporate personality, even though not lifted sometimes, is becoming more and more a transparent form of ensuring smooth business practices in modern jurisprudence. Corporate personality is one such identified legal fiction whereby a separate identity apart from its individual members are give… Doctrine of “lifting the veil” received further development in the case Antonio Gramsci v Stepanovs (2011) (Nyombi 2014). In turn, a protective “veil” of sorts is cast over the true controllers of the company. through the Directors. THE CONCEPT OF LIFTING THE VEIL Under the English doctrine there are a number of exceptions to the separate legal personality principle; i.e. Lifting or Piercing the Corporate Veil. Introduction Salomon v Salomon [1] involved the principle of separate corporate personality. Lifting of Corporate Veil: A company is an artificial person is clothed with a corporate veil. Lifting the Veil of Incorporation. A high profile example can be seen in the case of the Vodafone be maintained. However, business owners can still be liable for business activities if they failed to follow corporate guidelines, commingled assets or acted recklessly. The courts in general consider themselves bound by this principle. – The paper examines case law and statutory provisions related to lifting the corporate veil. 3 0 obj Learning unit 1: Legal personality and lifting of the veil • When does a company acquire legal personality? Lifting the Corporate Veil Introduction The extremely famous and somewhat revolutionary decision of Salomon v Salmon & Co Ltd [1897 introduced andupheld the corporate personality doctrine which was then defined in the Companies Act 1862. 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. Circumstances in which courts may lift the corporate veil LIFTING, PIERCING AND SIDESTEPPING THE CORPORATE VEIL James Wibberley, Guildhall Chambers & Michelle Di Gioia, Gardner Leader 1. x��{[�������Pd=���xZ�|޹�k�'iI���\J����t2�|� v����o������'���O�'�qvvvyyy}}=��>>>�'M� @'''Z҉�߿��z[6x�4�ZA� ���>�C-�$�F̍�K���d2�� @۸��`�v ���_��k�'�A�� �)|�� ��T��u�. In such situations, law holds fast to fictio juris or legal fictions whereby it depart from the truth and believe something else. Introduction Salomon v Salomon [1] involved the principle of separate corporate personality. courts will lift the veil of incorporation; none however are really satisfactory. That is, at times law may have to identify certain facts as something which may go against the actual manifestation. The corporate veil separates the company from its shareholders. 0 Tax-based Veil Piercing It is common practice to incorporate in jurisdictions where tax is lower or to create holding entities that may be exempt from taxation. Therefore the courts usually do not look behind "the veil" to inquire why the company was formed or who really controls it. I'm also going to talk about the consequence of the veil being lifted, in other words, what remedies the court will give. For example, in the case of Petrodel Resources Ltd and Others v Prest. A high profile example can be seen in the case of the Vodafone The company, in the contemplation of law, is a person distinct from the shareholders. 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 reveal the true form and character of the concerned company. THE CONCEPT OF LIFTING THE VEIL Under the English doctrine there are a number of exceptions to the separate legal personality principle; i.e. This is because; a company, once duly incorporated becomes an artificial person that has a separate legal entity, distinct from the people who constitute the company. ��`ez4a���c6NJ. This principle may be referred to as the ‘Veil of incorporation’. ‘Lifting of corporate veil’ or disregarding of the corporate personality is common buzz in the modern corporate arena. Thus it became necessary for the Courts to break through or lift the corporate veil and look at the persons behind the company who are the real beneficiaries of the corporate fiction.Lifting of the corporate veil means disregarding Doctrine of lifting of corporate veil has been pursued since then, but the way the Doctrine of Corporate Veil is implemented has taken various approaches over the years. The aim of this work is to examine situations when the court will lift the veil of corporation. 2. The Supreme Court stated that this was a fit case for lifting of the corporate veil and the veil must be lifted when the device of incorporation is being used for some illegal or improper purpose. For example, in the case of Petrodel Resources Ltd and Others v Prest. %PDF-1.5 This is the statutory lifting of the veil and judicial lifting of the veil. Critically evaluate, with reference to relevant case law and statute, how far this statement accurately reflects the current law relating to lifting the veil of incorporation. Lifting the veil of incorporation is rare in the UK. In other words, unlike a partnership, the liability of members of the company is limited to the extent of capital contributed by t… The concept of lifting the corporate veil is a very dynamic concept. (iii) Veil of Incorporation Veil of incorporation or corporate veil is the legal assumption that the acts of a corporation are not the actions of its shareholders, directors and managers, so that they are exempt from liability for the corporation’s actions.12 (iv) Lifting or Piercing the Corporate Veil This concept thus protects the shareholders from being personally liable for the company’s wrong and its obligations. The spirit of Tax-based Veil Piercing is to reduce instances of tax-avoidance that are facilitated by incorporation. The Supreme Court stated that this was a fit case for lifting of the corporate veil and the veil must be lifted when the device of incorporation is being used for some illegal or improper purpose. However, there are still circumstances in which the courts will allow a request to lift the veil. Limited liability companies provide huge commercial benefits for businessmen, but even larger ... can hide behind the veil of incorporation when a business deal goes south. The act of so doing is what is known as lifting the veil. To aid comprehension, this work is divided into 5 sections. stream Section 1.0 is the introductory part; section 2.0 examines the concept of lifting the veil. Tax-based Veil Piercing It is common practice to incorporate in jurisdictions where tax is lower or to create holding entities that may be exempt from taxation. Company Law Lifting of Corporate Veil _____ _____ - 1 - INTRODUCTION When a company is incorporated it is treated as a separate legal entity distinct from its promoters, directors, members, and employees; and hence the concept of the corporate veil, separating those parties from the body, has arisen. Corporate personality and the veil of incorporation 2 Abuse of the Separate Legal Personality Separate Legal Personality. %%EOF The Courts according to ��$� R�{O���S����1Ge������j�1�^�}q,�ܽ��cʇ��Ǧ���v�t�ݵ@�:O'��h&u�F�i�$l�n��p����(�IC�QD��ߤÌ�k8lc �f`�`�h�AX40�Y�rd�x��]�83�4/�ƒQ����&�@��(����L"�[T>d80L����! 841 0 obj <>/Filter/FlateDecode/ID[<7033EA5303886044BBBE34826DBF6F64><4F721A8EFE6A6A439AFDCA637FF33F4C>]/Index[826 40]/Info 825 0 R/Length 80/Prev 156369/Root 827 0 R/Size 866/Type/XRef/W[1 2 1]>>stream The concept of lifting the corporate veil is a very dynamic concept. 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. Limited liability companies provide huge commercial benefits for businessmen, but even larger ... can hide behind the veil of incorporation when a business deal goes south. e judiciary in particular seem to love using unhelpful metaphors to describe this process. 4 0 obj In the case law, Salomon v. Salomon 1897, (EXPLAIN) Lifting the Veil of Incorporation Most of the time, the courts do not go against the veil of corporation. The human ingenuity however started using the veil of corporate personality blatantly as a cloak for fraud or improper conduct. The concept of ‘lifting the corporate veil’ has been regarded by the courts and jurists. The veil of corporate personality, even though not lifted sometimes, is becoming more and more a transparent form of ensuring smooth business practices in modern jurisprudence. h�bbd``b`�m@�� H�_�� � "H�Ԃ�� �9�� ��XG@����u/&F� ��G����@� �� ? The veil shall be lifted to prevent the avoidance of recognition by the eyes of equity. This will mostly be when people have tried to use the incorporation to evade a legal obligation or liability. The Courts according to – The paper examines case law and statutory provisions related to lifting the corporate veil. In those cases there was an issue of transferring contractual obligations the same way. veil will be lifted.”16 Herron CJ, in Commissioner of Land Tax v Theosophical Foundation Pty Ltd,17 described “lifting the corporate veil” as an “esoteric” label.18 He further stated that: “Authorities in which the veil of incorporation has been lifted have not been of … 2 0 obj In other words, where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to … The House of Lords decision in Salomon dominated in this period thereby acting as a restraint on veil lifting. DOCTRINE OF LIFTING OF CORPORATE VEIL PERSPECTIVE IN TAXATION CASES By Nikhil Singal and Aditya Bhattacharya “The company is at law a different person altogether from the subscribers to the Memorandum and, although it may be that after incorporation the business is precisely the same as it … Some texts attempt to explain veil lifting by categories: where the company is an agent of another, where there is fraud, or tax issues, or employment issues or a group of com-panies exists the courts will lift the veil. It cannot act on its own, it can act only through natural persons i.e. While it is possible to fi nd examples of veil The issue of "corporatelifting the Once a company is incorporated and a certificate of incorporation is issued , • With reference to case law explain the meaning and effects of separate legal personality Salomon v … Lifting the Corporate Veil Introduction The extremely famous and somewhat revolutionary decision of Salomon v Salmon & Co Ltd [1897 introduced andupheld the corporate personality doctrine which was then defined in the Companies Act 1862. The incorporation of a company creates a separate “person” in law. Critically evaluate, with reference to relevant case law and statute, how far this statement accurately reflects the current law relating to lifting the veil of incorporation. Circumstances in which courts may lift the corporate veil Veil: a company is a very dynamic concept own, it can act only through natural i.e... 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