Introduction:
Companies are the dominant form of business association. The fundamental concept of company law was developed based on a case decided more than 100 years ago in the UK’s House of Lords. The case of Salomon established a maxim that a company is a separate legal entity distinct from its members. When a company is formed, it is said to have become “incorporated”. Thus it is a separate legal entity or a legal ‘person’ it has features that have given a company certain capabilities under the realm of law. The capabilities would include employing personnel, making contract, owning property, paying taxes and so on. A company can also sue and can be sued.
Under the eye of the law, anything that is capable of rights and duties is a person and thus has a personality. Persons can be of two types under the eye of law (i) natural persons and (ii) artificial persons. Natural persons are human beings and artificial persons are those created for the purpose of laws known as corporations or companies. As soon as a company is registered under the company act, it attains the status of a person that can buy, lend money, file and defend suit, sell goods and hold property.
One of the major features of a corporation from the very beginning is that the owners/shareholders enjoyed limited liability, which means, the owners were not liable for the debts of the company. Before the industrial Revolution it was only the persons who could be sued or sue. Thus, when a corporation breached a contract or broke a law, there was no remedy, because limited liability protected the owners and the corporation was not a legal person subject to the law yet then. There was no accountability for corporate wrongdoing.
Therefore the law suggests that there is a wall between a company and its shareholders. This wall is known as veil of incorporation. In order to understand how law defined the