LIFTING THE CORPORATE VEIL
To begin the discussion on the lifting of the corporate veil, it will be better to have a look at the judgment given in the case of Salomon v. Salomon & Company passed by the House of Lords in 1897. In this case the twin concept of corporate entity and limited liability was introduced into English law. It was laid down in this case that a company is a distinct legal person, entirely different from the members or the shareholders of that company. The members are liable only to the extent that they have contributed to the company’s capital. This means that the company has a perpetual life and existence of its own; it bears its own name; of has a seal of its own; it can own property; its assets are separate and distinct from those of its members; it can sue or can be sued exclusively for its own purpose; its creditors cannot obtain satisfaction from the assets of its members; the creditors or the members have no right to the assets of the corporation. However, two companies which are which are incorporated with the same set of shareholders are nevertheless distinct and separate entities. Thus, a rather hefty veil has been drawn between the two. However, this veil can be lifted, but only in certain circumstances.
The principal laid down in the above mentioned case of Salomon v. Salomon & Company has not always been applied in all the cases. Many a times the court ignores the corporate the veil and “lifts” or “pierces” the veil to reach the person behind the veil and to reveal the true form of the concerned company. This lifting or piercing has been allowed in these circumstances to prevent the corporate form from being misused or for the purposes set out in the statute. And thus, the court then disregards the principal laid down in the Salomon’s case and rips through the corporate veil to expose the true character and nature of the corporate.
The term “lifting the corporate veil”, pertains to the legal decision where a shareholder or...