January 27, 2021
lifting of corporate veil
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. He exercised unrestricted power to control the affairs of the company. A company or corporation can only act through human agents that compose it. The companies can thus own properties in their names, become signatories to contracts etc. Mr. Horne was fired from his position and job. In Florida, one must typically show two things in order to pierce the corporate veil: 1. The basis of this argument is that despite the separate legal personalities of the companies within the group, they in fact constitute a single unit for economic purposes and should therefore be seen as one legal unit. In this case the assessee was a wealthy man enjoying large dividends and interest income.  Salomon v Salomon – Case Summary, Law Teacher (2018), https://www.lawteacher.net/cases/salomon-v-salomon.php (last visited Dec 18, 2020). This fiction is created by a veil and is called the Corporate veil. The phrase piercing the corporate veil is used to describe the action of a court to hold corporate shareholders and LLC owners personally liable for the debts and liabilities of a corporation. So, this principle is also called “disregarding the corporate entity”.  Rahul Sharma, Case Summary: Lee vs. Lee Air Farming Limited, 1960 LawLex.Org (2020), https://lawlex.org/lex-bulletin/case-summary-lee-vs-lee-air-farming-lee-limited-1960/24542 (last visited Dec 24, 2020). The company acts on the concept of the corporate veil, this veil when misused for fraudulent acts will reveal the true nature and real beneficiaries of the company, thus, called the lifting of the corporate veil. The corporate veil is the term given to the imaginary barrier that separates the company from those who direct it and from those who own it. In this case, Mr. Solomon had the business of shoe and boots manufacture. The corporate veil may be ignored if the company is formed merely to evade tax. In course of time, the doctrine that a company has a separate and legal entity of its own has been subjected to certain exceptions by the application of the fiction that the veil of the corporation can be lifted and its face examined in substance. Lee was a qualified pilot and formed a company named Lee’s Air Farming Ltd. for the purpose of carrying the business of aerial top-dressing with 3000 shares, 1 Euro each forming the share capital of the company. D-4 denied the liability on the ground that it had nothing to do with the transaction in question as he was neither a director nor a shareholder of the company so it was held that he had no locus in the company and hence not liable. The case focused on payments of business rates and the use of special purpose vehicle (SPV) companies to avoid rate liability. By this doctrine, a shareholder can only lose what he or she has contributed as shares to the corporate entity and nothing more. An American company financed the production of a film in India in the name of a Britain company.  Corporate Veil Definition: Protecting the Corporate Veil, The Strategic CFO (2019), https://strategiccfo.com/corporate-veil/ (last visited Dec 18, 2020). IBC Suspension: Too Much To Chew On For The Banks? There are two existing theories for the lifting of the corporate veil. 2999 shares out of 3000 shares were owned by Lee himself. This concept of corporate veil is applied in Solomon v. Solomon case, Lee v. Lee’s Air Farming Ltd. In such cases, the Courts adopt the test of control. In The King v Portus; ex parte Federated Clerks Union of Australia[iv], where Latham CJ while deciding whether or not employees of a company owned by the Federal Government were not employed by the Federal Government ruled that the company is a distinct person from its shareholders. Besides statutory provisions for lifting the corporate veil, courts also do lift the corporate veil to see the real state of affairs. So if this corporate personality is uncovered or unveiled, the shareholders or the directors mostly are found to be behind the veil. The doctrine of "Lifting of Corporate veil " is the most essential Principle of Company Law which establishes a company as an entity that is completely distinct from its shareholders, advocates, managers and directors: Thus, when a company is incorporated, a legal entity gets created, which is separate from its members, employees, shareholders, directors, and promoters etc. Thereafter, the film at the time of release was refused by the Board of Trade to register it as a British film because the British company acted merely as an agent of an American company. It is up to the court to decide on which theory to apply or make a combination of the two doctrines. At times it may happen that the corporate personality of the company is used to commit frauds and improper or illegal acts.  Company Law, excellentcareersolution, http://excellentcareersolution.com/images/note/Company Law BCOP-302.pdf (last visited Dec 18, 2020). The concept of lifting of corporate veil says that a company will be regarded as having enemy character if the persons having de facto control of the company are resident of enemy country or whenever they are acting on instruction of enemy, therefore there should be a lifting of corporate veil. There are certain circumstances when the lifting of corporate veil becomes necessary. Circumstances under which Court may Lift the Corporate Veil Fraud or Improper Conduct A company is an artificial person and so it cannot act on its own. Read … Lifting Of The Corporate Veil ABSTRACT 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].This principle may be referred to as the ‘Veil of incorporation’. The alter-ego theory considers if there is in distinctive nature of the boundaries between the corporation and its shareholders. 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