• In the eyes of law, a company is a legal person with a separate entity distinct from its members of shareholders. In essence it means that there is a veil or curtain separating the legal entity of the company from its members or shareholders. But in reality there is no such separation between the economic interests of the company and its members. The members are shareholders are the beneficial owners of the property of the company and as such they’re economic interest are identical with those of the company.
• The theory of corporate entity is still the basic principle on which the whole law of corporations is based. But as the separate personality of the company its statutory privilege, it must be used for legitimate business purposes only. When fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to take shelter behind the corporate personality. The Courts will break through the corporate shell and apply the principle of lifting or piercing the corporate veil. The Court will look behind the corporate entity and take action as though no entity separate from the members existed and make the members or the controlling persons liable fro debts and obligations of the company.
• Ordinarily, the Courts recognize the separate legal entity of the company and consider themselves bound by the principle laid down in the case of Salomon Vs. Salomon & Co. Ltd. They do not lift or pierce the veil of corporate entity to look at the economic realities behind the legal veil. But in exceptional cases, the courts may disregard the concept of corporate entity to look at the persons (members or shareholders) behind the company. They may, so to say lift the corporate veil to probe into the economic realities behind the scene. This is known as the “lifting or piercing the corporate veil.’
• In Salomon Vs. Salomon & Co. Ltd it was decided that a company has an independent and... [continues]
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