The Corporate Veil Is Defined As A Legal Concept That Separates

1816 WordsMar 15, 20178 Pages
The corporate veil is defined as a legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company 's debts and other obligations. The corporate veil is pierced through legal decision which treats the rights or duties of a corporation as the rights or liabilities of its shareholders. There are several circumstances in which the courts will consider piercing the corporate veil: 1) fraudulent representation by corporation directors; 2) undercapitalization; 3) failure to observe corporate formalities; 4) absence of corporate records, 5) payment by the corporation of individual obligations; or 6) use of the corporation to promote fraud,…show more content…
Other shareholders in a company likewise have limited liability, therefore no risk of personal loss so in the event of company failure, company law limits their personal liabilities so even though this benefits the shareholders the ordinary people see the result is an economy is run by shareholders of companies whose management have negligible direct personal accountability or loss if those companies should fail. Consequently, the ethics of that economy become questionable if the protagonists do not face the risk of unrestricted personal loss. The Salomon decision allowed, with full agreement to the companies act, sole traders and shareholders to have limited liability. The establishment of one-man companies under the Companies Act was solidified by this case. It now became of no relevance if shareholders are independent of one another, interdependent, dummy shareholders or nominees for the controlling shareholders; that is to say, the company was not an agent for its shareholders. Piercing the corporate veil has the goal of bringing the behavior of corporate organizations into order, with schemes including social security or unemployment

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