Learn about the corporate veil, a legal doctrine that protects personal assets by separating a company's identity from its shareholders. Find out more about removing the corporate veil, which occurs when courts ignore this division in situations involving wrongdoing, fraud, or misuse of the law.
Meaning of corporate veil
Meaning - corporate veil refers to a legal concept whereby the company is identified separately from the members of the company.
The term corporate veil refers to the concept that members of the company are shielded from liability connected to the company‘s Action.
Thus, the shareholders are protected from the acts of the company.
A famous case law Salomon vs. Salomon and Co Ltd.
Now, the question may arise whether this veil of corporate personality can even be lifted or pierced.
Before going into this question, we first to try to understand the meaning of the phrase “lifting the veil” .
Lifting of corporate veil
The following are the cases where company law disregard the principle of corporate personality or the principle that the company is legal entity distinct and separate from the its members or shareholders.
To determine the character of the company i.e to find out whether co- enemy or Friend :
A company being an artificial person cannot be any enemy or Friend. However, during the war ,it may become necessary to lift the corporate veil and see the persons, behind it as to whether they are enemy or Friend.
Case law:- Daimler Co Ltd. Vs continental tyre & Rubber co.
To protect revenue/tax :
Where a company is being used as means of tax evasion (theft) ,the court may lift the corporate veil and ignore the corporate entity .
Case law: [juggilal vs. Commissioner of income tax AIR (SC)]
To avoid the legal obligation:
Where it was found that the sole purpose for formation of company was use it as device to reduce the amount to be paid by way of bonus to workmen , the court may lifting the corporate veil.
Case law: [workmen of the Associated Rubber industry Ltd. bhavnagar Vs. Associated Rubber industry Ltd. Bhavnagar and another ]
Formation of Subsidiaries to act as agents :
A company may sometimes be regarded as an agent or trustee of its members or of the company, and may therefore be deemed to have lost its individuality in favour of its principal.here the principal will liable for the acts of the agent.
Case law :[ Merchandise Transport Limited vs. British Transport Commission (1982) ]
Company formed for fraud/improper conduct or defeat law :
The corporate veil may be lifted if the company is formed to defeat the law or defraud the creditors or avoid legal obligations.
Case law: [ Guilford motor Co. Vs. Horne ]
Source:- the above information is provided with help of the companies Act,2013.
