Lifting of The Corporate Veil: Implications For Group Companies

ABSTRACT

The concept of a company as a separate entity from its shareholders is well known and recognized in many common law and civil law jurisdictions. Generally, it is regarded as a fundamental aspect of corporate law and for this reason courts are loath to depart from it. Nevertheless, the principle of separate personality is not absolute and in both common law and civil law countries the courts have the power to depart from it.

 

Where this occurs, it is often said that the courts “pierce” or “lift” the corporate veil. This will usually, but not inevitably, lead to liability being imposed on another person, perhaps in addition to the corporate vehicle. This paper aims to compare and critically examine the circumstances under which veil piercing takes place against the objectives of incorporation in group situation.

 

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The countries examined are England, and the United States (US) which are common law jurisdictions, as well as the civil law countries of China and Germany. The main purpose of this comparison is to offer a reasonably comprehensive and thorough examination of how the principle of veil piercing, which has been formally adopted either through case law or legislation, is doctrinally applied by the courts in these jurisdictions. The functional method in comparative law is inevitably employed in this paper, but we also consider other aspects. It will be seen that there are many parallels between the countries being compared, whether common law or civil law, in part because the historical circumstances leading to the rise of corporate personality were very similar, and also because the corporations laws in civil law countries referred to in this paper are legal transplants.

 

The paper argues that in almost all the jurisdictions examined, some cases of veil piercing ought not to have been decided as such because doing so gives rise to chequered outcomes. Instead other legal tools should have been used particularly those in the law of torts.` We believe this paper fills a gap in the literature of comparative corporate law as the doctrine of veil piercing in group situation has shall be seen anon, the concept has been frequently misapplied and there is also a paucity of academic commentary in this area.

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