The Veil of Incorporation Can Be Lifted Only Where a Company Is ‘a Mere Facade Concealing the True Facts

In: Business and Management

Submitted By morenon0
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“The veil of incorporation can be lifted only where a company is ‘a mere facade concealing the true facts’.”
Written under exam conditions (45 minutes); Words: 380

The general rule in company law comes from Salomon case, which establishes a maxim that a company is a separate legal entity distinct from its members. The liability of a company’s member is therefore limited by shares or by guarantee, which means that the company’screditors cannot seek satisfaction from the members, even if the company has insufficient funds to pay its own liabilities in full. Since a company is trated as a separate legal entity, the metaphor of « corporate veil » separating the members of the company from the corporate body has arisen.

Lifting the corporate veil refers to the possibility of looking behind the company personality to make the members liable, as an exception to the Salomon rule.

Different cases permitted us to identify the traditional categorisation of veil lifting : attribution of characteristics, single economic unit, agency, tort and mere façade concealnig the true facts. Arguably, only mere façade is a true ground for lifting the veil of incorporation.

The mere façade test is applied by the courts when the corporate structure is beeing misused by the person, or persons, who control it to evade obligations or liabilites to which they are otherwise subject. Control and impropriet must be estabished, remembering that it is not improper to organise one’s business affairs, to take advantage of incorporation and limited liability.

The nature of the wrongdoing, the improprietym which would merit trating the company as a façade for these purposes was examined in Adam v Cape industries plc. The Court of Appeal accepted the structure is a façade when they involve situations where a corporate structure has been used by a defendant to evade limitations imposed on…...

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