Write a short note on ‘Lifting of Corporate Veil’

Question: Write a short note on ‘Lifting of Corporate Veil’.

Find the question and answer of Company Law only on Legal Bites. [Write a short note on ‘Lifting of Corporate Veil’.]

Answer

Lifting of the corporate veil refers to a legal principle where the court disregards the separate legal personality of a corporation and looks behind the facade to examine the individuals behind it. The corporate veil can be lifted in certain circumstances where it would be unjust to allow the corporation to hide behind its legal personality and avoid liability.

Some landmark case laws related to the lifting of the corporate veil:

Salomon v. Salomon & Co Ltd, [1896] UKHL 1: This is one of the most famous cases in company law and established the principle of the separate legal personality of a corporation. The court held that a company is a separate legal entity from its shareholders and can sue or be sued in its own name. However, this principle is not absolute, and the court may lift the corporate veil in certain circumstances.

Jones v. Lipman, [1962] 1 WLR 832: In this case, the court lifted the corporate veil to hold the sole shareholder and director of a company personally liable for a contract entered into by the company. The court held that where a company is a mere facade for the activities of one person, the veil may be lifted to hold that person liable.

DHN Food Distributors Ltd v. Tower Hamlets London Borough Council, [1976] 1 WLR 852: This case concerned a company that was incorporated for the purpose of avoiding liability for rates. The court held that the company was a sham and lifted the corporate veil to hold the owners of the company personally liable for the rates owed.

Gilford Motor Co Ltd v. Horne, [1933] Ch 935: In this case, the court lifted the corporate veil to hold the controlling shareholders of a company personally liable for a debt owed by the company. The court held that the veil could be lifted where the shareholders were using the company as a means of avoiding a personal liability that they otherwise would have had.

Lifting of the corporate veil is a principle that allows the court to examine the individuals behind a corporation and hold them personally liable in certain circumstances where it would be unjust to allow the corporation to hide behind its legal personality. The landmark cases described above demonstrate how the principle has been applied in various situations and highlight the importance of considering the separate legal personality of a corporation.

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