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Corporate Veil Advantages And Disadvantages Essay

1562 Words7 Pages

• Transferability of shares
Company is funded in the form of capital and other sources. Capital of a company is the major source of funds which is divided into shares. These share are movable property of the company and hence acquire the property of transferability based on the terms and conditions. Shares can be transferred through stock exchanges (markets) in electronic form.
When the joint stock companies were established, the object was that their shares should be capable of being easily transferred, [In Re. Balia and San Francisco Rly., (1968) L.R. 3 Q.B. 588]. According to section 56 of the Companies Act, 2013 a company will register a transfer of securities of the company (which includes shares), only when a proper instrument of transfer …show more content…

The privilege of having a separate personality shall not be put to any illegal use. The principle of ‘Corporate Veil’ safeguards the members from the liability of the company.
According to the Doctrine of Corporate Veil, a veil or a curtain exists between the company and its members. Members might take advantage of the veil to carry out activities fraudulently and take cover in the name of the company. Courts intervene whenever the veil is used to cheat someone or perform any fraudulent transaction. Courts uses their power to lift this veil to bring the culprits to light and punish them. Thus where the law pierces the corporate veil and holds the individual members responsible, who take cover behind the legal framework of their company, is termed as the lifting of corporate veil.
The corporate veil is lifted when in defence proceedings, such as for the evasion of tax, an entity relies on its corporate personality as a shield to cover its wrong doings. [BSN (UK) Ltd. v. Janardan Mohandas Rajan Pillai [1996] 86 Comp. Cas. 371 …show more content…

Prevention of fraud or improper conduct: The legal personality of a company may also be disregarded in the interest of justice where the machinery of incorporation has been used for some fraudulent purpose like defrauding creditors or defeating or circumventing law. Professor Gower has rightly observed in this regard that the veil of a corporate body will be lifted where the ‘corporate personality is being blatantly used as a cloak for fraud or improper conduct’. Thus where a company was incorporated as a device to conceal the identity of the perpetrator of the fraud, the Court disregarded the corporate personality (Jones v. Lipman) (Gilford Motor Co. v.

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