- 20 Marks
Question
What are the reasons for which the courts are prepared to lift or pierce the ‘veil of incorporation’ of a limited liability company? (20 marks)
Answer
With the ‘Veil of Incorporation’, the company is separate from its members, such that, although the corporate veil principle is regarded as fundamental to company law, there are instances where it has been lifted or ignored in favor of the economic realities of the situation.
This occurs where the Courts are prepared to take judicial notice of the identities of the owners, directors, or controllers with a view of fixing them with some legal liability. The reasons the Court gives for lifting the veil may be several but notable among them are:
i) Agency principle
ii) Fraud principle
iii) Capital flight
iv) Public policy
v) Facade principle/Evasion of contractual obligation
vi) Statutory provisions
Examples of statutory provisions are:
a) Failure to publish annual returns
b) Operating with less than two directors
c) No membership (a company without any member)
d) Failure to display the company’s name
(20 Marks)
- Tags: Company Law, Corporate Structure, Legal Liability, Veil of Incorporation
- Level: Level 1
- Uploader: Dotse