Corporate Veil Essay

8195 Words33 Pages
Introduction: Incorporation by registration was introduced in 1844 and the doctrine of limited liability followed in 1855. 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. In that case the apex court simply laid down that a company is a distinct legal person entirely different from the members of that company. The chief advantage of incorporation from which all others follow is the separate entity of the company. In reality, however, the business of the legal person is always carried on by, and for the benefit of, some individuals. In the ultimate analysis, some human beings are the real beneficiaries of the corporate advantages, “for while , by fiction of law, a corporation is a distinct entity, yet in reality it is an association of persons who are in fact te beneficial owners of all the corporate property.”1 And what the Salomon case decides is that ‘in questions of property and capacity, of acts done and rights acquired or, liabilities assumed thereby…the personalities of the natural persons who are the companies corporators is to be ignored”.2 This theory of corporate entity is indeed the basic principle on which the whole law of corporations is based. Instances are not few in which the courts have successfully resisted the temptation to break through the corporate veil. But the theory cannot be pushed to unnatural limits. Circumstances must occur which compel the courts to identify a company with its members. “There are situations where the court will lift the veil of incorporation in order to examine the ‘realities’ which lay behind. Sometimes this is expressly authorized by statute…and sometimes the court will lift its own volition”.3 What this means is that the company has life of it's own, can own property, can sue
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