Piercing the veil is one of the most discussed and litigated doctrines in all of corporate law. A company has a corporate personality distinct from its members. From the juristic point of view, it is a legal person distinct from its members. This is the principal laid down in Salomon v. Salomon & co. ltd., (1897) A.C. 22].The courts did this to in relation to a one person member company. The principal is commonly referred as “veil of incorporation” The courts were bound by these principals but they realised exceptions to the rule. This happened due to human inventiveness which started using the veil of corporate personality deliberately for fraud and improper conduct. The courts started to lift the fictional veil between the company and its members. Professor of Law, S. Ottolenghi in his article "From Peeping Behind the Corporate Veil, to ignoring it Completely" says "the concept of 'piercing the veil' in the United States is much more developed than in the UK.
A company is “[A] new legal entity, a person in the eye of the law. Perhaps it were better in some cases to say a legal persona, for the Latin word in one of its senses means a mask: Eriptur persona, manet res.” The separate legal entity principle has continued unexpurgated from Anglo-Australian corporate law for more than one hundred years. When a company acts it does so in its own right and not just as an alias for its controllers. Similarly, shareholders are not liable for the company’s debts beyond their initial capital investment, and have no proprietary interest in the property of the company. The Saloman principal led to limited liability companies,which means that members can be held liable only to a fixed extent of the debts of the company. The creditor can sue the company but not the members of the company. There are two exceptions why a company cannot be treated as a separate entity. It clearly cannot be treated as an independent person. For example, a corporation is not capable of committing a tort or a crime requiring proof of mensrea unless courts disregard the separate entity and determine the intention held by the directors and/or shareholders of the corporation.16 Secondly, strict recognition of the principle may lead to an unjust or misleading outcome if interested parties can "hide" behind the shield of limited liability. At the same time, courts have acknowledged that the corporate veil of a company may be pierced to deny shareholders the protection that limited liability normally provides. “Piercing the corporate veil” refers to the judicially imposed exception to the separate legal entity principle, whereby courts disregard the separateness of the corporation and hold a shareholder responsible for the actions of the corporation as if it were the actions of the shareholder. A court may also pierce the corporate veil where requested to do so by the company itself or shareholders in the company, in order to afford a remedy that would otherwise be denied, create an enforceable right, or lessen a penalty. Since Salomon, the courts in the United States, England and Australia, have found exceptions to the general principle stated in Salomon and have pierced the corporate veil to reveal those who control the company.
It is impossible to establish when the courts would lift the veil. The matter is largely in the prudence of the courts and will depend upon “the underlying social, economic and moral factors as they operate in and through the corporation.” It can be said “that adherence to the Salomon principle will not be resolutely followed where this would cause an unjust result”. As the laws have evolved, the judges have given grounds under which the corporate veil can be pierced.An eminent judge noted ““[T]he separate legal personality of a company is to be disregarded only if the court can see that there is, in fact or in law, a partnership between companies in a group, or that there is a mere sham or facade in which that company...
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