(a) The concept of veil of incorporation is the greatest invention in company law.

Discuss the
statement with reference to decided cases

Corporate personality is also known as legal personality and juristic personality. A distinctive
feature of Private & Public companies. Corporate personality is different from natural
personality for obvious reasons. A Co is referred to as an artificial or fictitious person that only
exists in the contemplation of the law. It cannot have things like social or personal relationships
but rather acts through its officers. Separate personality of a Company operates as a shield- the
courts will not normally look beyond the facade of the Co to the shareholders who comprise it.
With corporate personality, a Co is capable of excising rights and incurring obligations as does a
natural person. Legal personality makes a Co an entity which is different and separate from its
members. This principle was enunciated in the celebrated English case of Salomon v Salomon &
Co Ltd (1897) AC 22 (a boot and shoe manufacturer). A successful leather merchant...in 1892
converted into a limited company...him as MD...10000 debentures...20001 shares held by
Salomon...6 remaining shares by each of his family members. Soon company went into
liquidation a year later. Assets only sufficient to pay off the debentures...nothing left for
creditors. Creditors argued that there was no difference between Salomon and the Co after
incorporation
A Co is therefore equal at law to a natural person-S9. Its assets are distinct from those of its
members. Creditors cannot claim personal assets of the members for debts incurred by the Co.
Section 9 says “A company shall have the capacity and powers of a natural person of full
capacity in so far as a body corporate is capable of exercising such powers.
Lifting the corporate veil refers to situations requiring the courts to judge the Co with due
consideration to the actual state of affairs pertaining within the Co, behind the corporate entity.
The corporate veil is usually lifted to protect the creditors but also some members who may be
prejudiced unfairly by the actions of those running the Co.
Corporate personality can become problematic. It surely can easily be manipulated and abused
by the members to commit crimes or fraud for the benefit of the members knowing fully that the
company will be liable and the members’ personal assets will not be touched. In such cases, the
courts resort to what is called ‘Lifting/Piercing/Disregarding the Corporate Veil’ in order to see
and deal with the responsible officers. According to Cape Pacific v Lubner Controlling
Investments & Ors, lifting the veil of incorporation is the act of disregarding the dichotomy
between a company and the natural person behind it (or in control of activities) and attributing
liability to that person where he has misused or abused the principle of corporate personality.

There are both Statutory and Common Law exceptions to lifting the corporate veil.
Statutory Exceptions to the Corporate Veil
Refers to situations where the legislature disregards the corporate veil to protect mainly 3rd
parties from abuses by unscrupulous business people hiding behind the corporate veil. In such
cases, the legislature will render persons other than the Co liable for the debts of the Co as a
sanction for noncompliance with statutory requirements.
Statutory Exceptions
Section 32-where a Co has no members but continues to carry on business for more than 6
months without members, whoever knowingly causes and allows it to do so will be liable jointly
and severally with the Co for its debts incurred after the 6 months have elapsed. The rationale
here is that those who work for a Co must not allow it to incur debts etc fully knowing that it has
no members otherwise personal liability will follow. Application of section is wide to include
employees and even family members. 6 months is basically given to allow the responsible
persons time to rectify the anomaly. Actual knowledge required-possible defence.
Statutory Exceptions
Section 318-applies more directly to lifting the corporate veil. The courts may
disregard the corporate veil and hold liable any persons who knowingly carried on
business of the Co in a reckless manner or with gross negligence or with intent to
defraud any person or for any fraudulent purpose. Criminal liability may also
attach. Full application of this section could however be hampered by the need to
actually prove recklessness or gross negligence or fraud etc, which in a Co may
be difficult especially for complainants with limited resources. However, section
318 does provide creditors with a fighting tool which they can use when
necessary. It is a departure from the rigid application of the rule in Salomon v
Salomon.

Statutory Exceptions
Section 58-refers to civil liability for misstatements in the Prospectus (s58(1)(a-d). The Co
representative responsible for the misstatement is liable to compensate all persons who subscribe
for any shares or debentures on the faith of the prospectus for loss/damage that they may have
suffered thereof. Section 59 also attaches criminal liability in respect of such. Section 340-345-
details offences done in respect of a Co by officers of the Co and makes such officers directly
answerable for such offences in their personal capacity. there are a number of other instances in
the Co Act where the corporate veil is lifted and officers of the Co are personally held
accountable either in civil or criminal proceedings. Go through the Co Act
Common Law Exceptions to Separate Legal Personality.
There is no hard and fast principle or rule regaling instances where the judiciary lifts the
corporate veil using common law practice. As such it is difficult to predict when the veil will be
lifted by the courts. In Salomon v Salomon, 3 categories where mentioned where the corporate
veil may be lifted namely:

 Where fraud was present

 Where the Co was used as an agent of the incorporator
 Where the Co was not a real one but a fake or myth

Otherwise in other cases, it was stated that the courts are prepared to pierce the corporate veil
where the Co was used to defeat public convenience, to justify wrong or to protect fraud or on
policy and justice grounds.
Common Law Exceptions to Separate Legal Personality
As a general rule therefore, the courts will not hesitate to lift the corporate veil where it thinks
that it is necessary in order to do justice or to frustrate some grave impropriety. there is therefore
a very fine line between protection of corporate personality and piercing the corporate veil by the
courts.
(b) Discuss the statutory and common law exception to the rule in Foss Vs Harbottle (1849)
which allows a minority shareholder to bring a legal action to redress a wrong, which has
been done to a company of which he or she is a member.