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It is said that the standard of separate legal personality “shapes the establishment of current company law. Any special cases to this guideline should in this manner be viewed as difficulties to those establishments.”
As a general principle corporations are recognized as legal entities separate from their liability of the entity and not of the shareholders, directors, or officers who own and/or act for the entity.
Hence the manner by which the law challenges the principle of separate legal personality is through a procedure called lifting the corporate veil.
Section 9 of Companies Act, 2013 codifies that a Company is a legal entity in its own right. However it was the landmark UK case of Salomon v Salomon & Co. Ltd in 1897 which initially handled the issue of separate legal personality in the court, and additionally the guidelines and standards of separate legal personality and at last chose that the lawful analogy of corporate veil was to be acknowledged at law.
The separate identity of a company is a statutory benefit and it must be utilized for honest to goodness business purposes as it were. Where a fake and unscrupulous utilize is made of the legal entity, the people concerned won’t be permitted to take shield behind the corporate personality.
The Court will get through the corporate shell and apply the rule of what is called as “lifting of or piercing the corporate veil”. The Court will look behind the corporate substance and make a move as if no element isolate from the individuals existed and make the individuals or the controlling people at risk for obligations and commitments of the company.
Statutory Recognition of Lifting of Corporate Veil
The Companies Act, 2013 itself contains a few arrangements [Sections 7(7), 251(1) and 339] which lift the corporate veil to achieve the genuine powers of activity. Section 7(7) manages with punishment for incorporation of company by outfitting false information; Section 251(1) manages risk for making fake application for expulsion of name of company from the list of company and Section 339 manages obligation for fake direct of business throughout winding up.
As far back as the choice in Salomon v. Salomon and Co. Ltd., (1897) A.C. 22, regularly Courts are hesitant or in any event extremely wary to lift the veil of corporate personality to see the genuine people behind it. By the by, Courts have thought that it was important to ignore the separate personality of a company in the accompanying circumstances.
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