Does the effect of Corporate Personality nullify the Doctrine of Corporate Veil?

ABSTRACT

The Companies Act oversees the limited liability principle, which gives the shareholders or the owner with safeguard against liability to creditors in the situations of the company facing financial difficulties. Corporate personality has been termed as the ‘most extend of the fundamental principles of company law”. It comprises the substratum rule whereupon company is viewed as an entity definite from the shareholders comprising it. The specific dissociation between the shareholders or owners of the limited company is the notion known as the ‘Corporate Veil’. When a company is consolidated, it is treated as a separate lawful entity distinct from its promoters, directors, members, and employees; and thus the idea of the corporate veil, separating those parties from the corporate body, has emerged.

Keywords: Corporate, Lifting, Incorporation, Legal Entity

INTRODUCTION

Corporate Personality is basically the Legal character of the company separate from the members of the company and Corporate Veil is a legal concept that separates the actions of an organization to the actions of the shareholder. Also, it protects them from being liable for the company’s actions.

  • CORPORATE PERSONALITY

The basic attribute of corporate personality, from which all other consequences stream if the corporation is a lawful entity separate from its members. Consequently, it is adept of enjoying privileges and of being subjects to obligations which are not equivalent to those enjoyed or toted by its members. In other words, it has a “lawful personality” and is often portrayed as an artificial person in contrast with a human being, a natural person.[1] For quite a long time, there was a warmed discussion over the appropriateness of the tenet of separate legal entity and further to restrict the hypothesis of limited liability which is often allegorically termed as “lifting the corporate veil”.[2] It has also been elaborated as “piercing the corporate veil: the judicial demonstration of imposing liability on in any case immune corporate officers, directors, and shareholders for the corporation’s wrongful acts.”[3]

  • LIFTING THE CORPORATE VEIL

Piercing or lifting the veil is corporate law’s most broadly utilized principle to choose when a shareholder or shareholders will be held accountable for obligations of the corporation. It keeps on being one of the most disputed and most discussed doctrines in all of corporate law.[4]

The expression “piercing the corporate veil” has additionally been portrayed as, “the Court’s reluctance to allow corporate presence and action to redirect judicial course of applying law to ascertain facts”.[5] When this principle is summoned, it is admissible to show that the individual holing upbehind the corporation is subject to parole the obligations overlooking the idea of corporation as a separate entity. By and large, an incorporated company is obligated as a juridical individual. It is distinct from its shareholders and Board of directors of Company. The acts of misbehavior and misconduct and demonstration of wrongdoings by the shareholders and directors of a corporation (company), do not always bind the company as such. However so as to apply law to learned facts, judicial process can disregard juridical character of the company and take-up the directors and in specific cases even shareholders to discharge the lawful obligations. When the corporate veil is lifted/pierced, it only implies that the Court is accepting that the corporate entity of a concern is a trick to sustain the fraud, to dodge liability, to evade impact of statute and to maintain a strategic distance from obligations under a contract.[6]

EFFECT OF CORPORATE PERSONALITY OVER THE DOCTRINE

A corporation is cloth with a particular character by fiction of law. But in actuality, it is an association of persons who are in fact, as it were, the useful owners of the property of the body corporate. A company being a counterfeit individual, cannot follow up on its own, it can act only through natural persons. The entire thesis of incorporation depends on the hypothesis of corporate entity however the distinct personality of the company and its legal advantages should be utilized for reliable purposes as it were. Where the lawful entity of the company is being utilized for deceitful and untrustworthy reasons, the people concerned won’t be permitted to take the sanctuary behind the corporate character. The court in such cases will get through the corporate shell and apply the rule of what is known as “lifting the corporate veil”. The corporate veil of a company might be boosted to discover the genuine character and financial real factors behind the lawful character of the company. Without a doubt, the hypothesis of corporate entity of a company is as yet the basic principle on which the whole law of corporations is positioned. Yet the distinct personality of the company, being a judicial privilege, should consistently be utilized for authentic business purposes as it were. That is, the court will look behind the corporate entity.

From juridical point of view, a company is a legal person separate from its members. The consequence of this principle is that there is fabricated veil between the company and its members. But in various circumstances, the court will penetrate the corporate veil or will overlook the corporate character to grasp the individual behind the veil. The rationalization behind the veil is probably that law will not permit the corporate form to be maltreatment lifting of corporate veil is a procedure which could infiltrate through the Doctrine of separate legal personality to avert any malpractices in the company under the red-letter of corporate personality. It further reinforce the transparency in the organization. It does safeguards that none of the wrong doer could escape the obligation in the name of such Doctrines.

CONCLUSION

The concept of lifting the corporate veil is an evolving idea. The veil of corporate personality even though not lifted sometimes is becoming more and more transparent in modern company jurisprudence. The opportunity has already come and gone to emphasize that in the growing of skyline of the current statute, lifting of the corporate veil is passable, its boondocks are limitless. In any case, it must rely principally upon the real factors of the circumstance.


[1]. Gower and Davies, Principles of Modern Company Law, 8th ed. Sweet and Maxwell, London, 2008.

[2].RadhikaSeelam, LIFTING THE CORPORATE VEIL: THE ENGLISH AND INDIAN LAWS (2013), http://www.legalindia.in/lifting-the-corporate-veil-the-english-and-indian-laws/ (Last visited on December 3, 2020)

[3]. Black’s Law Dictionary 1168 (7th ed. 1999).

[4]. HarshitSaxena, “Lifting of Corporate veil” available at http://www.ssrsn.com

[5]. Volume 32A of Words and Phrases (West Publishing Company – third reprint 1989 p.84).

[6]. http://www.lawctopus.com/academike/corporate-veil/(Last visited on December 3, 2020)

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