Veil Of Incorporation Essay

Strictly, a company has no particular definition but section 3(1) (i) of the Companies Act attempts to provide the meaning of the word in context of the provisions and for the use of this act.The House of Lords unanimously held that the company had been validly constituted, since the Act only required seven members holding at least one share each and that Salomon is separate from Salomon & Co. The entity of the corporation is entirely separate from that of its shareholders; it bears its own name and has a seal of its own; its assets are distinct and separate from those of its members; it can sue and be sued exclusively for its purpose; liability of the members are limited to the capital invested by them.[ii] Further in .[iii], it was held that there was a valid contract of service between Lee and the Company, and Lee was therefore a worker within the meaning of the Act.It was a logical consequence of the decision in Salomon’s case that one person may function in the dual capacity both as director and employee of the same company.This section gives a list of officers who shall be liable to punishment or penalty under the expression ‘officer who is in default’ which includes a managing director or a whole-time director.Section 45– Reduction of membership below statutory minimum: This section provides that if the members of a company is reduced below seven in the case of a public company and below two in the case of a private company (given in Section 12) and the company continues to carry on the business for more than six months, while the number is so reduced, every person who knows this fact and is a member of the company is severally liable for the debts of the company contracted during that time.It states: ‘a company means a company formed and registered under this Act or an existing company as defined in section 3 (1) (ii).’ The company must be registered under the Companies Act for it to become an incorporated association.If it is not registered it becomes an illegal association.This paper would deal with the lifting of corporate veil and its aspects with the judicial decisions.Let us first discuss the exact meaning of corporate veil and lifting of corporate veil with limited liability concept.In , where Latham CJ while deciding whether or not employees of a company owned by the Federal Government were not employed by the Federal Government ruled that the company is a distinct person from its shareholders.The shareholders are not liable to creditors for the debts of the company.


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