What is Corporate Veil

Corporate veil means that in the eyes of law a company is a separate legal person. It has its own personality. Company has its own common seal which is to be put on every agreement with the company to make it valid. Common seal is worked as same as signature of a human being. As company is an artificial person it does not have signature of its own hence a common seal is made to fulfill that purpose. A company has provided the fundamental rights but not the citizenship rights as a artificial person.

As per the rule of corporate veil the company can sue and be sued upon its own name. The members cannot be held liable for the acts of company. The members of the company are only liable to contribute up to the amount as mentioned in article of the company. So the third party cannot sue any member, director or any officer or employee of the company in relation of any dispute arises from the agreement of company. Although the members, directors and employees works on behalf of the company but it is not permitted to held them liable for acts of company.

However law has also provided some situations when it becomes necessary to lift the corporate veil of the company. Lifting the corporate veil means that ignoring the rule of separate legal entity of the company or disregarding the corporate personality and looking behind the real person who is in the control of company.

It should be noted that lifting is only permissible in exceptional cases. It is noted that when a company is unable to fulfill its statutory requirements the lifting is done and the person who is responsible for such act is held liable. Example in case of reduction in membership below statutory minimum, misdescription of name of the company, fraudulent training and Ultra Vires acts etc.

Sometimes the corporate veil is lifted under judicial decisions also. As company being an artificial person cannot itself act in deceptive and fraudulent way. Hence when it is found that any member or such person by taking advantage of rule of corporate veil acts in such way then he should be personally liable for such act. So the lifting is done for the purpose like. Example protection of revenue, prevention of fraud or improper conduct, determining the character of the company and check avoidance of welfare legislation etc.

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