The Corporate Veil


In the case of a company limited by shares the liability of the members is limited to any amount remaining unpaid on the shares held by them. In the case of a company limited by guarantee each member is liable to contribute a specified amount to the assets of the company in the event of its being wound up while he is a member. In the case of unincorporated bodies, the position is like that of partnership and consequently the liability of the association is that of the individual members. The practical significance of such limitation of liability is that it defines the extent of investment risk and loss.

  • In fact, also in this case it is the company which owns its property, not the members.
  • Separate legal personality A company incorporated under this Act shall be a body corporate with the name by which it is registered and continues in existence until it is removed from the register of companies.
  • This liberal construction of what constitutes control sufficient to establish proximity for the purposes of a duty of care will usually be met in a parent-subsidiary relationship, especially where the subsidiary is wholly owned.
  • In the one hand the company exclusively entitled to exercise its rights as human beings, on the other hand, it is limited.
  • The remaining shareholders would receive no money because they were unsecured creditors.

Virtually immediately after the transfer, the profitability of the business began to decline. The company found itself in debt and unable to pay its debts as they fell due. Mr Salomon cancelled his loan note, the debenture, and the company entered into loan arrangements/debentures with Mr Broderip who became a secured creditor of the company. The company failed to pay interest on the loan when it fell due and Mr Broderip exercised his right, as a secured creditor, to have a receiver appointed. The company’s assets were sold by the liquidator to realise cash to pay both the secured and the unsecured creditors of the company.

Does a Company With LLC Status Belong to the Business Owner?

If one company is held liable as a principal for the acts of another company, the relationship of agency should be substantially established, as was the case in the instant decision. It has the legal personality of its own and it can sue and can be sued in its own name.

It means that the court will ignore the separate legal entities of the various companies within a group. Casein this case court penetrating the veil and gets the information about the irregularities with the company property. It was held that no shareholder has any right to any item of company’s property. Generally, the courts are reluctant to pierce the corporate veil to protect creditors in the absence of fraud. However, where reckless trading takes place by directors, s 135 of the Act allows for the veil to be pierced. The European Union has legal personality since the Lisbon Treaty entered into force on 1 December 2009. That the EU has legal personality is a prerequisite for the EU to join the European Convention on Human Rights .

Company’s   classification and characteristics:

The contracts are carried out by the directors and other agents of the company. If a shareholder has paid the full amount, he/she is not liable to pay any amount upon dissolution of the company.

Is a corporation a separate legal person?

A corporation is a legal entity that is separate and distinct from its owners. Under the law, corporations possess many of the same rights and responsibilities as individuals. They can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes.

In court cases regarding corporates, the shareholders are not responsible for the company’s debts but the company itself being a “legal person” is liable to repay those debts or be sued for the non-repayment of debts. Partnerships, an aggregate of two or more persons to carry on a business in common for profit and created by agreement. Traditionally, partnerships did not have continuing legal personality, but many jurisdictions now treat them as having an independent legal personality. A corporation sole is a corporation constituted by a single member, in a particular capacity, and that person’s successors in the same capacity, in order to give them some legal benefit or advantage, particularly that of perpetuity, which a natural person could not have had. Examples are a religious officiant in that capacity, or The Crown in the Commonwealth realms. A corporation aggregate is a corporation constituted by more than one member.Municipal corporations are “creatures of statute”. Other organizations may be created by statute as legal persons, including European economic interest groupings .

What is a separate legal entity of a company?

Now that you know what a separate legal entity is, you may be asking, What is a separate entity? All businesses should be separate entities from the owners, members, stakeholders, etc. of the company. A separate entity just means that the business keeps its finances separate from the personal assets of anyone with a stake in the company. Sixty per cent of its share capital was owned by an Indian group of companies and forty per cent share capital was owned by a Singapore based foreign company. The Government had invited tenders for distribution of State largesse. The appellant’s tender was not considered on the ground that the experience of its constituents was not the same as that of the appellant and because of inadequate experience, the respondent’s tender was accepted as they had long experience and had also offered a much lower amount of royalty. The appellants pleaded the experience of constituents of the joint venture company should be treated as its own experience and corporate veil should be seen through for this purpose.


At the same time, however, the courts have showed also dangers that could derive from the application of this principle. For instance, considering the business activities of a company, in the event of a defamatory statement towards the company’s business, the company is entitled to sue and to recover damage for liable, as it was recognised in Jamell v Wall Street Journal Europe SPRL. According to the section 304, Companies Act 1965, together with the section 303, provide that an officers who knowingly contract a debts on behalf of the company. It means borrow money and knowing that that the company is most likely unable to pay the debt is guilty of an offence and on conviction be made personally liable to pay that debt. A sole proprietorship or sole trader is an unincorporated business with a single owner who pays personal income tax on business profits.

Separate legal personality

Be , or become subject to, enforceable legal obligations and liabilities. Das v Linden CONSEQUENCES OF INCORPORATION Separate Legal Personality Mews Ltd Two residents of Linden Mews formed a company called Linden Mews Ltd.


In canon law, the doctrine of persona ficta allowed monasteries to have a legal existence that was apart from the monks, simplifying the difficulty in balancing the need for such groups to have infrastructure though the monks took vows of personal poverty. Another effect of this was that, as a fictional person, a monastery could not be held guilty of delict due to not having a soul, helping to protect the organization from non-contractual obligations to surrounding communities. This effectively moved such liability to persons acting within the organization while protecting the structure itself, since persons were considered to have a soul and therefore capable of negligence and able to be excommunicated. Thus the court therefore provided various exceptions to the rule, which allows for the ‘lifting of the veil’ of the rigid construct as provided for in Salomon v. Salomon. These exceptions have been a basis for continuous debate amongst legal scholars as to whether they render the century-old principle out of place and relevance in modern company law. In the instant case, the company was defrauding others in deliberate disobedience of Supreme Court’s orders which amounted to contempt of Court.

Principle of Separate Legal Existence

Therefore, in such situation if we apply the principle of separate legal personality, there would be, on the one hand the company, on the other hand one person in three functions. Besides, the veil of incorporation will be lifted when there is a group of companies, including holding and subsidiary company, the court can lift the veil and treat a company and its subsidiary as one economic unit. In case DHN food Distributors Ltd v Tower Hamlets London Borough Concil, subsidiary company owns a piece of land while the DHN which is parent company operated the business on the land. The local authority refused to pay the compensation on the grounds that the land did not belong to DHN.