Lifting of the corporate veil

Question 1

Explain Lifting of the corporate veil

Answer 1

When Fraudulent or dishonest use is made of the legal entity, the individuals concerned will not be allowed to take shelter behind the corporate personality.
The Court will break through the corporate shell and apply the principle/doctrine of what is called “Lifting or Piercing the corporate veil” where the court will look behind the corporate entity and take action.

Question 2

Circumstance: Protection of Revenue

Answer 2

The court may ignore the separate legal entity status of a company, where it is used for tax invasion or circumventing tax obligations

Question 3

Circumstance: Determination of enemy character of the company

Answer 3

Company being an artificial person cannot be enemy or friend. But during war it may become necessary to lift the corporate veil and see the persons behind it to determine whether they are friends or enemy. This is because, though a company is a separate legal entity, its affairs are run by individuals. {Daimler Co. Ltd Vs Continental Tyre & Rubber Co. Ltd}

Question 4

Circumstance: Prevention of fraud

Answer 4

Where a company is used for committing fraud or improper conduct, the court may lift the corporate veil and look at the realities of the situation. {Jones Vs Lipman}