| Legal Perspective |
Most of the company rules in English law are laid down by court’s precedents (Judge made law).
We quote here, a very famous case (Salomon vs. Salomon), wherein it has been decided by the House of Lords to separate the entity of the person (owner) from his company.
In other words, he is not personally responsible to meet the debts of or claims against the company. This is a remarkable principle and puts a cornerstone legal principle in corporate law and by such separation the law puts a “veil” on the responsibility as the company is regarded a “legal juristic person” responsible for its acts.
This makes the difference between the “natural person” and the “juristic legal person”.
Courts are in general precluded by Salomon case from treating a company as the agent, trustee or nominee of its owners. They will nevertheless do so if corporate personality is being used in instances of fraud or improper conduct. Generally, courts have found it essential to lift the veil for certain purposes owing to the fact that a company is only an “artificial” person, this particularly applies to the determination of its residence and to ascertain whether the acts of its agents have been effectively ratified. They have also generally sought to the application of the principle in Salomon by ignoring it in cases where the facts are sufficiently different.
The corporate veil isolates and gives special protection to the personal assets of the corporate owner. However, such owners shall be aware that courts may decide otherwise in circumstances wherein the shield could be lifted by piercing the veil. Such instances include, inter alia, personally guaranteeing business loans or using personal property as collateral for business loans.
Failure to keep business funds separate from personal funds (commingling assets). Not meeting other compliance obligations or conducting fraudulent activities under the business.
Piercing the corporate veil (or “lifting” the veil) is when courts determine that personal liability protection does not apply.
When the corporate veil is pierced, the individuals behind the business entity will be held personally accountable for debts or legal wrongdoing of the business. It is required to be vigilant to keep the corporate veil intact so as to keep yourself away from legal responsibility. The corporate business is governed by law and working within the law puts the corporate veil.