...whether section 163 (4) of the Companies Act, No 71 of 2008 codified the common law approach in piercing the corporate veil i.e. to what extent did the 2008 Act brought some certainty regarding to the grounds in which the courts will disregard the juristic existence of a company. To achieve this I’m going to first explore the position of common law in this field of law. As a point of departure, the company is equal in law to a natural person. This is one of the cornerstones of South African company law, and has been since 1897 handed down in the Salomon case namely that a company is a legal entity distinct from its shareholders. It allows a company to perform juristic acts in its own name, as well as to sue and to be sued. Further, members and directors enjoy protection against personal liability. The corporate veil is a fundamental aspect of a company law and is a protective stratagem for those who exist behind it . Although this fundamental rule has a considerable influence in company law, it cannot be absolute and, as such, according to the case of Lock harts ltd v Excalibur Holdings ltd it can be saved for certain exceptions (where the courts may disregard the separate legal personality of the company) Herron CJ in Commissioner of Land Tax v Theosophical Foundation described lifting of the corporate veil as an ‘esoteric’ label, stating further that authorities in which the veil of incorporation has been lifted have not been of such consistency that any principle can be...
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...The Development of Piercing Veil in Chinese Corporate 1. Introduction of “Piercing the Corporate Veil’ The corporate law doctrine of ‘Piercing the Corporate Veil’ is a longstanding feature of the corporate law of shareholder’s capital contribution in which a corporate shareholder or director is held responsible for the liabilities or debts of a corporation in excess of their capital contributions. Corporation law issues this concept between a corporation and its shareholders that protects shareholders from liability for a corporation’s actions because a corporation is legal entity separate from its shareholders. Once shareholders have made their promised capital contributions to the corporation, they have no further financial liability and corporate debts in excess of their investment in the corporation. Creditors seeking payment of debts or tort victims seeking redress generally can reach only the corporation’s assets, not those of its shareholders. However, courts generally ignore this corporate fiction and treat a corporation’s debt as the debt of the corporation’s shareholders. In doing so, courts “pierce the corporate veil.” Once “pierce the corporate veil authorized by court, contracts of a corporation are not debts of its shareholders. Nonetheless, in order to promote justice and to prevent inequity, courts will sometimes ignore the separateness of a corporation and its shareholders by piercing the corporate veil. The primary consequence...
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...Critically analyse as to what extent the corporate veil has maintained a separate legal identity between a corporation and its incorporators and critically assess as to whether t ‘piercing of the veil’ doctrine has served its purpose. The case of Saloman v Saloman established the principle that the company is a separate legal identity from its share holders or owners. This simply means at law the company is viewed as a separate being from its incorporators. A company may incur a debt and only the company will be liable for that debt its incorporators will not have to reach into their personal assets to relieve the company of that debt even if they are in sole control of that company. This principle has coined the term “the veil of corporation”. The veil of corporation has been a strict rule in company law, however there have been instances where the courts are willing to pierce this veil and view a company and its incorporators as a single entity. The extent to which the courts will uphold the principle in Salomon will be discussed below. In Macaura v Macaura Macaura exchanged his timber and estate for shares in a company, the timber was insured in his name and subsequently got burnt, Macaura neglected to have the timber insured in the company’s name hence the insurers said he had no claim to the timber. Macura followed the decision in Soloman however my point of focus is on Lord Wrenburys statement “The corporator even if he holds all the shares is not the corporation”...
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...THE DOCTRINE OF PIERCING THE CORPORATE VEIL: ITS LEGAL AND JUDICIAL RECOGNITION IN ETHIOPIA Endalew Lijalem Enyew ♣ Abstract: Upon acquisition of legal personality a company enjoys certain attributes such as limited liability. While the separate legal personality of a company enables it to enjoy rights and assume obligations quite different from its members, the limited liability of shareholders refers to the fact that the company alone is liable for its debts. However, such privilege of limited liability may not always exist when the legal personality of a company is abused and used for illegitimate or unlawful purposes and other reasons. This article examines some of the grounds by which the corporate veil can be pierced under Ethiopian law and the role of courts in recognizing the doctrine. Based on the analysis of the relevant legislative provisions and some court cases, it is found that Ethiopian company law, though not sufficient, provides some clear grounds of piercing the corporate veil and certain possible grounds which may call for the application of the doctrine. It is also argued that Ethiopian courts should apply the doctrine of piercing the corporate veil, through the purposive interpretation of the statutory provisions, if doing so produces equitable results and fairness. Key Words: Company, corporate veil, piercing the veil, Ethiopia DOI http://dx.doi.org/10.4314/mlr.v6i1.3 _____________ Introduction The separate legal personality of a company renders...
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...THEORY OF PIERCING THE CORPORATE VEIL Most people form corporations to insulate themselves from liability. The insulation exists because corporations are generally considered by law to be separate and distinct from their shareholders. This protection is often referred to as the corporate veil. While most people who incorporate believe they have no personal liability for the debts of the corporation, this is not always true. For example, if a corporation or LLC is used to commit a fraud, injustice, or wrong, it shouldn’t protect its owners from liability. Courts may also pierce the corporate veil in taxation or bankruptcy cases. For example, if a corporation that faces obligations to creditors and potential lawsuits has siphoned off its assets through dividends or salaries, courts may find undercapitalization. Such corporations are called shells or shams designed to take advantage of limited liability. Courts can disregard or pierce the corporate veil in some of these situations where the corporation acts as the alter ego of the shareholders in their dealings with third parties. Alter-ego is the argument that if the limited liability entity is merely treated as an extension of a single person then the entity and individual should be treated as a single individual with no limited liability. In other words, the entity is “dominated” or used as an instrument for a sole individual’s purposes. This is because by law they can be owned and/or managed ie. Dominated by a single person...
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...William Woolum each served prison sentences and paid criminal fines. After his release from prison, Roger Richardson filed for bankruptcy under Chapter 7 of the Bankruptcy Code. The United States (the Government) brought this action in May of 1988 against WRW and Roger Richardson, Noah Woolum, and William Woolum to recover the civil penalties previously imposed against WRW. The district court denied the individual defendants' motion to dismiss and granted summary judgment to the Government piercing the corporate veil under state law and holding the individual defendants liable for the civil penalties assessed against WRW. For the reasons discussed herein, we affirm. The district court held that it was appropriate to pierce WRW's corporate veil under either an equity theory or an alter ego theory, both of which are recognized under Kentucky law. Under either theory, the following factors must be considered when determining whether to pierce the corporate veil: (1) under capitalization, (2) a failure to observe the formalities of corporate existence, (3) nonpayment or overpayment of dividends, (4) a siphoning off of...
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... Executive Summary Piercing the corporate veil is the judicial act of imposing personal liability on otherwise immune corporate officers, directors, and shareholders for the corporation’s wrongful act (Black Law Dictionary). In other words, courts may pierce the "veil" that the law uses to divide the corporation (and its liabilities and assets) from the people behind the corporation. The veil creates a separate, legally recognized corporate entity and shields the people behind the corporation from personal liability. In Enron Case , mulltiple corporate governance mechanisms, both internal and external, failed to constrain the actions of Enron's management team: • In particular, Enron's board failed to oversee management and apparently did not understand the risks inherent in the firm's business strategy. • It also appears that several board members and the external auditor faced potential conflicts of interest that attenuated their role as monitors. • Further, the board, analysts (credit and equity), external auditors, and federal agencies failed to identify problems at Enron or did not respond to obvious signs that there were problems at the firm. • Finally, Enron's role as a dominant player in nascent and inefficient markets, afforded the firm's management the opportunity to manipulate prices, asset values, and thus the firm's financial position Table of Content Executive Summary (1 Page) I. Background Of Enron’s Case (2 Pages) II. 5 Theory of Piercing The Corporate Veil (4 pages)...
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...CASE: Northeast Iowa Ethanol, LLC v. Drizin A) Parties The plaintiffs involved in this case are the local farmers from Manchester, Iowa. They formed Northeast Iowa Ethanol, LLC. William Ethanol Service and the North Central Construction also invested the construction of the Iowa ethanol plant. The defendant involved in this case is Jerry Drizin. He formed a Nevada corporation, Global Syndicate International Inc. B) Facts In 2000 in Manchester, Iowa, farmers and the President of the local Co-op, Douglas Bishop, began meeting with representatives of the United States Department of Agriculture to explore the possibility of building an ethanol plant in the Manchester area. The idea of building the plant was to help farmers in the area in getting more value out of their crops. An ethanol plant produces ethanol and feed grain that is sold at a profit exceeding that associated with the mere sale of grain. The construction of the plant was expected to cost approximately $21 Million (Morlan, editor & publisher; 2006). It would have the room for producing 15 million gallons of ethanol per year. Through the meetings, Mr. Bishop and others raised $2,365,000. Traditional lenders (like the banks) demanded that the plaintiff raise forty percent of the construction costs. It was clear that the plaintiff could not raise $8 Million. The plaintiff's proposed marketing partner, Williams Ethanol Services, agreed to invest $1 Million in the project as well. The contractor anticipated...
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...Buffalo Creek: Disaster Appropriation The Buffalo Creek Disaster in February of 1972 was, in no manner of exaggeration, a horrific and awful event. Worse than a tornado or an earthquake because it was completely and utterly avoidable; an example of corporate greed that needed to be atoned for. Pittston company surely only owned the Buffalo Creek Mining company but this case was a landmark in corporate liability in regards to ‘Piercing the Corporate Veil’. In the eyes of the law, a corporation is considered most of a person. It can have investments, it can be sued, it can be held accountable. Obviously, a corporation is not a person, and thus it can’t be sentenced to community service or prison time. The idea behind a corporation being held accountable is that the owners and/or shareholders have a limited liability with regards to the actions of the company. In the instance of the Buffalo Creek dam disaster, Pittston (whom owns the Buffalo Creek Mining Company) argued that they couldn’t be held responsible for the unfortunate disaster because they were mere shareholders in the Buffalo Creek Mining Company. They argued that while they owned the company, they were not responsible for the actions of the company itself. In most cases, this might be true. If this case hadn’t be tried as hard as Mr. Stern and his partners had, Pittston never would have been deemed liable. As Pittston’s legal team would try to conceal, and Stern and company would come to discover, Pittston...
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...Piercing the Corporate Veil The whole objective of piercing the corporate veil is to prevent companies from using the guise of corporate personality to commit illegal and fraudulent and illegal acts. It can perhaps be said that the catalyst of the birth of this concept came about in Solomon v Solomon & Co. Ltd, wherein the concept of the company’s separate legal personality was upheld. The decision came in for severe criticism from some quarters. Otto Kahn Freund called the decision ‘calamitous’ and also proposed the abolition of private companies. There have been times when Indian courts have been slightly conservative in applying the doctrine, calling for its implementation only when it is explicitly provided for in the statute. Nevertheless, this doctrine has found acceptance in a majority of Indian courts, with the Supreme Court noting that lifting the corporate veil is becoming more translucent in modern jurisprudence and that’s its frontiers are unlimited. There are various circumstances under which courts have gone on to lift the corporate veil, such as making the holding company liable for failure to disclose the accounts of its subsidiary company, especially when it appears that the holding and subsidiary are parts of the same concern. Other instances where courts have gone on to lift the corporate veil are where the medium of the company has been used in committing fraud and illegal conduct, determination of enemy character of the company, liability for ultra vires...
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...secured creditor. This event will be brought to the court or the Supreme Court. They all think that creditors cannot recover their entire debt contract with the company, so not with Mr. Salomon. After a series of the appeals, it is considered by Salomon v Salomon & Co Ltd is a company, with separate legal personality qualification, so also can’t say Mr. Salomon owned by the company. The company and Mr. Salomon have two legal persons in the law. So it is has the right to enter into a contract. The principle in Salomon are a company must be an independent legal person, but from other members or shareholders. The principle of Salomon must also know the veil of incorporation of the company. If a company will formally merge, courts usually don’t see the veil to find out the cause of the company or who is in control of the company. Veil of the incorporation is to protect the company’s chairman, lest they had made a mistake by the prosecution. As separate legal person qualification, the company will...
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...Company Law for Business: Assignment 1 (i): Is the cat contract with Feline Fertility Pty Ltd enforceable? Your answer should include an analysis of the reason put forward by Lassie Ltd for terminating the contract. The area of law relating to this particular question is the Corporations Act 2001 section 124, which mentions the legal capacity and powers of a company, and section 125 (2), which refers to a company's objects within its constitution. As Lassie Ltd is a company, it is a separate legal entity, meaning it can enter into contracts in the same legal way a normal human being could. Lassie Ltd's constitution includes the objects clause stating that the company's activities are to be restricted to the breeding and selling of dogs and goods and services associated with dogs, this is why Lassie Ltd wants to terminate the contract. This objects clause does not prevent the company from entering into any contracts as the company can enter into any contract that it wants to as it is a separate legal entity. Despite the fact that Lassie Ltd broke its company constitution, the contract is still enforceable with Feline Fertility Pty Ltd due to the abolishment of doctrine of ultra vires. The abolishment of doctrine of ultra vires means a company cannot enter into contracts beyond their power and then later avoid their legal obligations on the grounds that they had no legal capacity to enter into the contract. Lassie Ltd knowingly entered into the contract to purchase 300...
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...Nairobi THE COMPANY AS A JURISTIC PERSON VERSUS RESPONSIBILITY FOF THE DIRECTOR’S ACTIONS. Introduction: For a very long time a company has been treated as a corporate entity or a juristic person. In fact the concept of limited liability stems from this premise. Despite being an artificial person a company is wholly a creature of human beings, by human beings and for human beings. It solely rely on humans to conduct and transact any business. This research paper seeks to examine the concept of juristic personality, its advantages and its relationship with its owners. It delves into how decisions are made by this juristic personality, its liabilities and liabilities of those running it. The paper shall seek to examine if this veil of juristic person exists permanently or it can be lifted. What are the consequences of lifting that gown of juristic personality? The Concept of juristic personality. Companies and corporations are said to be legal or juristic personalities. This arises from the incorporation process. A corporation is a word that is said to have been derived from a Latin word corpus which means among other things “body”. An incorporated body becomes what is known as a “corpora coporata” in Latin or corporate body. The idea of a juristic person in law refers to an entity recognized in law as an artificial person. What this means is the entity recognized is given rights and responsibilities that arise from the law. The idea here is to separate the entity’s...
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...Name Institution Date Business operations Introduction Businesses can expand and originate from various entity types. Limited or general partnerships, corporation, sole proprietorship, nonprofit organizations, Limited Liability Company (LLC), and Limited Liability Partnership (LLP) may be a few examples of the styles available for business shareholders and owners to choose from in order to carry out their business operations. Each and every style may have its own gains and setbacks as regards taxation, liability and government regulations and laws. In a bid to answer your question, I might have to make use of two different business examples which comprise of different operation styles and guidelines. The two businesses include a bar business and professional practice and may be detailed on the basis of basic requirements necessary for successful business formation. I would also be keen at outlining the entity choice for each of these businesses as a way of providing advantages over the other. A detailed explanation of how each of the two scenarios controls the taxation, liability and business issues would also be in order. To add on that, the regulations, laws and potential risks that may be involved in every business style may be identified. Bar business The best business entity choice for Miriam, Lou and Jose in their business operation could be forming a Limited Partnership. Jose and Lou would then perform the role of general partners hence manage the operations of...
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...Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogello Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Aifredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos,respondents. D E C I S I O N HERMOSISIMA, JR., J.: The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught.The law in these instances will regard the corporation as a mere association of persons and, in case of two corporations, merge them into one. Thus, where a sister corporation is used as a shield to evade a corporations subsidiary liability for damages, the corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes into play. This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed grave abuse of discretion when it issued a break-open order to the sheriff to be enforced against personal property found in the premises of petitioners sister company. Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355Maysan Road...
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