Every Company has an identity, rights, duties and liabilities, separate from those of its members. Thus a VEIL of incorporation exists between the company and its members and due to this a company is not identified with its members.
But In reality, it is an association of persons, who are the beneficial owners of that property. The people behind the company are disregarded after the company is formed. But there are certain cases, when the CORPORATE VEIL of the company is lifted up.
When the status of Legal Entity is used to defeat public interest, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. Such cases may be as follows:
- For determining the character of the company – the people behind it should not be from our enemy country
- For revenues – like for evasion of taxes or penalties
- Reduction in number of members – if it goes below the minimum members required for a company
- Fraudulent conduct of business – if the business is found to be conducted to defraud its stake holders
- Failure to return the application money of those share applicants, who are not allotted company’s shares
- Misrepresentation in the Prospectus of the company
- Non-payment of taxes
- Promoters are liable personally for all the pre-incorporation contracts
- Ultra vires acts – directors are personally liable for those acts which they have done on behalf of the company if they are outside the scope of its Memorandum of Association clauses
In the above cases, the corporate veil will be lifted and the people behind it will be held personally liable for these acts.