Law and You > Corporate Laws > Companies Act, 2013 > Concept Application 1.4 Essay Type Answers

These are frequently asked questions (Essay Type) on advantages and disadvantages of incorporation of a company and case laws associated with it.

a) What are the salient features of a company? or What are the advantages of incorporation of a company?

According to Section 2(20) of the Companies Act, 2013, a “Company means a company incorporated under this Act or under any previous company law.” There are many advantages of incorporation of a company which can be considered as the salient features of the incorporation of the company.

The advantages or salient features of incorporation can be summarized as below:

1. Separate Legal Existence;
2. Limited Liability;
3. Perpetual Succession;
4. Easy Transferability of Shares;
5. Separate Property;
6. Capacity to Sue and Be Sued;
7. Professional Management;
8. Democratic Set-up; and
9. Capacity to Raise Finance

Now let us discuss them in detail.

1) Separate Legal Existence:

A company is a legal person in the eyes of law. It is an artificial person or a juristic person. A company is independent and separate from its members, and the members cannot be held liable for the acts of the company, even when a particular member owns the majority of shares. This was held in the case of Salomon v. Salomon & Co. (1897 AC 22). Salomon’s case established beyond doubt that in law a registered company is an entity distinct from its members, even if the person holds all the shares in the company i.e., a company has separate legal existence. There is no difference in principle between a company consisting of only two shareholders and a company consisting of two hundred members. In each case, the company is a separate legal entity.

In Lee v. Lee Air Farming (1961 AC 12) and Re. Kondoli Tea Co. Ltd. (ILR 1886 13 Cal 43) same principle were established.

In case of a partnership firm, it has no separate legal entity. Partners are responsible for every act.

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2) Limited Liability:

Due to the creation of a separate legal entity, the members have limited liability. Under Section 34(2) of the Company Act, in the event of a company being shut down, none of its members is legally bound to contribute to anything more than the nominal value of shares held by the member which still remains unpaid. If the corporation is sued or goes bankrupt, the assets of the company will be at stake, but not the personal assets of the members such as savings, a home or a vehicle. But it should be noted that there are certain situations when directors of a corporation can be held liable.

In J. H. Rayner (Mincing Lane) Ltd. v. Dept. of Tarde and Industry, (1990) 2 AC 418 case, no member is bound to contribute anything more than the nominal values of the share held by him.

In partnership, each partner of a firm is personally liable for all the liabilities of the firm to an unlimited extent.

3) Perpetual Succession:

As per Section 34(2) of the Company Act, an incorporated company has the characteristic of perpetual succession. The term perpetual succession of the company means its continuous existence, which means that a company never dies, even if the members cease to exist. The insolvency of a member, even of all the members of a company does not bring the life of the company to an end. Members can come and go but the company will be the same entity with the same privileges, immunities, estate, and possessions. The company only comes to an end, when it is wound up as per the Act.

In the case of a partnership firm, the death of even one partner of a firm may result in the dissolution of the entire firm.

In Re Noel Tedman Holdings Pvt Ltd., (1967) Qd R 56 case, the Court held that company members may come and go but this does not affect the legal personality of the company.

4) Easy Transferability of Shares:

Under Section 44 of the company act, the shares or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company. This provision leads to the investment of funds in shares. A shareholder can sell his shares in the market and get back his investment. For this, he does not require the permission of other shareholders.

In partnership, if a partner wishes to transfer his share in the firm to another person, he cannot do so unless all the other partners agree.

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5) Separate Property:

An incorporated company has a separate legal existence and an artificial person in the eyes of law. Hence it is capable of owning, holding, enjoying, and disposing of property. It is to be noted that the company is the real person in which the property is vested, and by which it is controlled, managed and disposed of. if a majority shareholder of the uses the company’s resources for personal reasons, he is liable to be held for criminal misappropriation of company funds under the Act.

In Gramophone &Typewriter Co. Ltd. v. Stanley (1908) 2 KB 856 case the Court held that the property of the company is not the property of shareholders, it is the property of the company.

In partnership, the partnership property belongs to all the partners and the distinction between the property belonging to the firm and the private property of the partners is quite hazy.

6) Capacity to Sue and Be Sued:

A person can take legal action on his / her name. Similarly, the company as an independent legal entity could take legal action in its own name against another person. In turn, it can be sued by other companies and people. However, the managing directors and other directors are not liable to be sued in the name of the company.

In Aspro Travel Ltd. v. Owners Abroad plc. (1996) 1 WLR 132 case, it is held that just as a person has a right to his reputation, so also, a company has the right to protect its name from being tarnished and can sue the third party for a defamatory statement made by him against the company.

A partnership is only an aggregation of its partners and can sue, and be sued, only in the name of its partners.

7) Professional Management:

A company with its vast and almost unlimited resources is capable of attracting the best professional talent at the managerial level in a given industry. This top-level management of the company is given free hand and free functionality. With available talent, company can expand and diversify very easily.

In a partnership firm due to less availability of funds almost all the managerial functions are done by partners themselves and thus partnership firm lacks professional management.

8) Democratic Set-up:
The working of a company is governed by the Board of Directors. These directors are elected and appointed by shareholders in their Annual General Meetings. These directors are experts in their field and can govern the company professionally.

9) Capacity to Raise Finance:

A company is in a much better position to raise finances than any other form of the business entity since a company can issue shares or debentures to the public. It is easier for the company to get loans from banks and financial institutions. This gives the company the capacity to raise larger finances. Additionally, the company can create a floating charge on its assets as security for the money borrowed by it.

A Partnership has to rely on the personal credit of partners in the market and are not able to raise larger finances.

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Conclusion:

The most important advantages of the incorporation are the separate legal existence of the company and limited liabilities. Other major advantages include transferability of shares, capacity to raise fund and professional management. These advantages made corporate form of business ideal for investors. in the event of a company being shut down, none of its members is legally bound to contribute to anything more than the nominal value of shares held by the member which still remains unpaid. Thus incorporation of company involves multifold advantages.

b) Discuss the nature of corporate personality or Discuss theory of corporate personality or Explain “A company is a legal entity separate from its members”

According to Section 2(20) of the Companies Act, 2013, a “Company means a company incorporated under this Act or under any previous company law.” A company is a legal person in the eyes of law. It is an artificial person or a juristic person. A company is independent and separate from its members, and the members cannot be held liable for the acts of the company, even when a particular member owns the majority of shares. This was held in the case of Solomon v. Solomon & Co.. Salomon’s case established beyond doubt that in law a registered company is an entity distinct from its members, even if the person holds all the shares in the company i.e. a company has separate legal existence. There is no difference in principle between a company consisting of only two shareholders and a company consisting of two hundred members. In each case, the company is a separate legal entity. In case of a partnership firm, it has no separate legal entity. Partners are responsible for every act.

Salomon’s case established beyond doubt that in law a registered company is an entity distinct from its members, even if the person holds all the shares in the company i.e. a company has separate legal existence. There is no difference in principle between a company consisting of only two shareholders and a company consisting of two hundred members. In each case, the company is a separate legal entity.

Solomon v. Solomon & Co.:

• Facts: Mr. Salomon was the owner of a very prosperous business engaged in the manufacture and sale shoes. He sold his business for the sum of £ 40,000 to Salomon and Co. Ltd. which consisted of Salomon himself, his wife, his daughter, and his four sons (7 shareholders). The purchase consideration was paid by the company by allotment of & 20,007 shares and £ 10,000 debentures and the balance in cash to Mr. Salomon. The debentures carried a floating charge on the assets of the company. 20001 shares of face value £ 1 each were allotted to Salomon. One share of £ 1 each was subscribed by the remaining six members of his family. Salomon and his two sons became the directors of this company. Salomon was the Managing Director. The company went into liquidation within a year due to trade depression. At that time the statement of affairs was like this: Assets: £ 6000, liabilities; Salomon as a secured creditor and debenture holder £ 10,000 and unsecured creditors £ 7,000. Thus, its assets were running short of its liabilities b £11,000.
• Issues and Arguments: The unsecured creditors of the company contended that the company, though incorporated under the Act, had never an independent existence; it was, in fact, Salomon under the name of a company. Actually, the company and Salomon were one and the same person. One argument put forth on the behalf of unsecured creditors was that the company was only the agent of Mr. Salomon, and, in truth, the business belonged to him and not to the company.
• Judgment: House of Lords held that the existence of a company is quite independent and distinct from its members. Shareholders may also be the creditors of the company. The court recognized the separate and independent personality of the company. The Court opined that it is not the case, in fact, Mr. Salomon was the agent of the company and not vice versa. This case is considered as a landmark judgment in the Company Law Worldwide, which gave boost to private investment in the business.

Lee V. Lee’s Air Farming Ltd. (1961) A.C. 12:

In this case, Lee formed a company with a share capital £ 3000 for the purpose of carrying on his own business of aerial top-dressing. Lee subscribed to shares worth £ 2999. He was the beneficial owner of the shares and also the sole “governing director” of the company. He also got himself appointed as the chief pilot of the company and under statutory obligations caused the company to insure him against liability to pay compensation under the Workmen’s compensation Act. He was killed in a flying accident. His widow was granted compensation for the husband in the course of employment. Court held that Lee was a separate person from the company he formed, and compensation was due to the widow. Thus, the rule of corporate personality enabled Lee to be the master and servant at the same time.

Re. Kondoi Tea Co Ltd. (1886 ILR 13 Cal 43):

In this case, some persons owned a tea estate. They transferred it to a company. They claimed exemption from ad valorem (according to value) duty on the ground that it is simply a transfer from them to themselves under a different name. The court did not accept this contention and observed, “The Company was a separate body altogether from the shareholders and the transfer was as much a conveyance, a transfer of property, as the shareholders had been totally different persons.” i.e., a company has separate legal existence.

• Due to the creation of a separate legal entity, the members have limited liability. Under Section 34(2) of the Company Act, in the event of a company being shut down, none of its members is legally bound to contribute to anything more than the nominal value of shares held by the member which still remains unpaid.
• The Companies Act states, ‘Members may come and members may go, but the company can go on forever.’ As per Section 34(2) of the Company Act, an incorporated company has the characteristic of perpetual succession. The term perpetual succession of the company means its continuous existence, which means that a company never dies, even if the members cease to exist.
• An incorporated company has a separate legal existence and an artificial person in the eyes of law. Hence it is capable of owning, holding, enjoying, and disposing of property.
• A person can take legal action on his / her name. Similarly, the company as an independent legal entity could take legal action in its own name against another person. In turn, it can be sued by other companies and people.

Thus, we can conclude that a company is a legal entity separate from its members.

Conclusion:

Salomon’s case established beyond doubt that in law a registered company is an entity distinct from its members, even if the person holds all the shares in the company i.e. a company has separate legal existence. This advantage made corporate form of business ideal for investors. in the event of a company being shut down, none of its members is legally bound to contribute to anything more than the nominal value of shares held by the member which still remains unpaid. It laid to historical industrial revolution phenomenon.

c) What are the disadvantages of incorporation of a company?

According to Section 2(20) of the Companies Act, 2013, a “Company means a company incorporated under this Act or under any previous company law.”

The disadvantages of incorporation can be summarized as below:

1. Lifting of Corporate Veil;
2. More Formalities;
3. More Expenses;
4. More Paperwork;
5. Publicity and Loss of Privacy;
6. Double Taxation;
7. Denial of Some Fundamental Rights;
8. Control Possible Without Majority Shareholding;
9. Possibility of Fraud; and
10. Difficulty in Closing the Business

1) Lifting of Corporate Veil:

A company is an artificial person is clothed with a corporate veil. It cannot act on its own, it can act only through natural persons i.e., through the Directors. The corporate veil separates the company from its shareholders. This concept of corporate veil is applied in Solomon v. Solomon case, Lee v. Lee’s Air Farming Ltd. But the theory cannot be pushed to unnatural limits. Circumstances must occur which compel the Court to identify a company with its members. There are certain circumstances when the lifting of the corporate veil becomes necessary. The separate personality of the company and its statutory privileges should be used for legitimate purposes only. Where the legal entity of the company is being used for fraudulent and dishonest purposes, the individuals concerned will not be allowed to take the shelter behind the corporate personality. The court in such cases shall break through the corporate shell and apply the principle of what is known as “piercing or lifting of the corporate veil”. Thus lifting of corporate veil refers to the possibility of looking behind the company’s framework (or behind the company’s separate personality) to make the members liable, as an exception to the rule that they are normally shielded by the corporate shell.

2) Formalities:

Incorporation requires a host of formalities to be complied with than any other form of the business. Formalities start before the actual incorporation of a company and exist throughout the life of the company and continue even during its winding up. Meetings are to be held on time, accounts are to be maintained as specified and its auditing should be done as per the provisions in the Act in time. Charges and mortgages are to be filed within the prescribed time. Returns are to be filed within time. Appointments of directors, their removal and replacements should be as per the Act. Noncompliance with the Act results in punishment to defaulters.

3) Expenses:

The initial cost of incorporation includes the fee required to file the Articles of Incorporation, potential attorney or accountant fees, or the cost of using an incorporation service to assist to incorporate the company with completion and filing of the paperwork. There are also ongoing fees for maintaining a corporation. Thus expenses are incurred before the actual incorporation of a company and throughout the life of the company and continue to incur even during its winding up.

4) More Paperwork:

A lot more paperwork involved in maintaining a corporation than a sole proprietorship or partnership firm. Corporations must maintain a minute book containing the corporate bylaws and minutes from all corporate meetings. Other corporate documents that must be kept up to date at all times include the register of directors, the share register, and the transfer register. Most corporations are required to file annual reports on the financial status of the company. The ongoing paperwork also includes tax returns, accounting records, meeting minutes and any required licenses and permits for conducting business.

5) Publicity and Loss of Privacy:

If a corporation is an incorporated company, one person doesn’t retain complete control of the entity. The company is governed by a board of directors, who are elected by shareholders. As per the Act, several documents and accounts are to be submitted to the authorities. The files with Registrar of Companies are available for public inspection. Thus the privacy is lost.

6) Double Taxation:

People who are owners of a corporation, and who also work as an employee of the business, can receive financial compensation in two different ways. In addition to receiving a salary or wages for work performed, the owner may also receive a dividend or distribution on the stock that he or she owns. Any distribution of income to stockholders via dividends is taxable. In the case of corporations such as a C Corporation, have the potential to result in “double taxation.” Double taxation occurs when a company is taxed once on profits, and again on the dividends paid to shareholders.

7) Denial of Some Fundamental Rights:

The Constitution guarantees fundamental articles under Article 14 to all and under Article 19 to the citizens of India. A company has a nationality, domicile, and residence but cannot ask for the enforcement of those fundamental rights which are exclusively available to national citizens. The nationality of the company, however, does not depend upon the nationality of its shareholders. A company has a nationality, domicile, and residence but cannot ask for the enforcement of those fundamental rights which are exclusively available to national citizens. The nationality of the company, however, does not depend upon the nationality of its shareholders.

In the State Trading Corporation of India v. Commercial Tax Officer, 1963 SCJ 705 case, the company argued that as all the shareholders of the company are citizens of India, the company should be treated as a citizen of Indi and it should get all the benefits conferred upon the citizens of India. The Court rejected the argument and it was held that neither the provisions of the Constitution nor the Citizenship Act applies to the company. It should be noted that though a company does not possess fundamental rights, yet it is a person in the eyes of law. It can enter into contracts with its Directors, its members, and outsiders.

In Rustom Cavasjee Cooper v. Union Of India 1970 AIR SC 564 popularly known as the Bank Nationalization case, the Court observed that in all cases where the company alleges that its fundamental rights have been violated, it is a fact that the fundamental rights of its shareholders are violated. So, if a shareholder files a writ petition, either by himself or even jointly with the company, his petition cannot be dismissed if he is a citizen of India. In such a case, he does not lose his fundamental right only because he is also a shareholder in a company.

8) Control Possible Without Majority Shareholding:

It is not always the case that the majority of shareholders have the control of the company. If a business family promotes accompany and holds only 10% of its shares, if the rest of the shares are held in small numbers by thousands of shareholders spread over the large geographical areas (country), still the family can have effective control over the company. In such cases, this 10 % of shareholders have 100% control over every aspect of the company. There is a possibility that the resources and finances of the company can be used for personal gains and benefits.

9) Possibility of Fraud:

When shareholding of a public limited company is spread out among thousands of small shareholders. In such cases, the board of directors has full control over every aspect and resource of the company including finance. In such cases, there is a possibility that the resources and finances of the company can be used for personal gains and benefits. Though there is governmental control over affairs of the company, large frauds have been done in the corporate world.

10) Difficulty in Closing the Business:

Perpetual existence of a company is considered one of the important advantage of the incorporation. But the same advantage becomes hurdle during the dissolution of the business. It requires significant time and money to complete the necessary procedures for dissolution.

Conclusion:

Incorporation creates a company as separate legal entity but it creates a veil between the company and its members. Some times board of directors of company can use this veil for fraud and malpractices beyond the knowledge of members of the company. More expenses are incurred after incorporation of company during incorporation and for running the company also involves large paperwork. There is no sense ownership of the company among the members. But still incorporation helped in overall development of industry world over.

d) State the circumstances in which the law would disregard the corporate personality of a company OR Explain the circumstances under which the court can lift the corporate veil of a company.

A company is an artificial person is clothed with a corporate veil. It cannot act on its own, it can act only through natural persons i.e., through the Directors. The corporate veil separates the company from its shareholders. This concept of corporate veil is applied in Solomon v. Solomon case, Lee v. Lee’s Air Farming Ltd. But the theory cannot be pushed to unnatural limits. Circumstances must occur which compel the Court to identify a company with its members. There are certain circumstances when the lifting of corporate veil becomes necessary.

In Gallagher v. Germania Brewing Co. 53 Minn 214 case, the Court commented: “for while, by the fiction of law, a corporation is a distinct entity, yet in reality, it is an association of persons who are in fact the beneficial owners of all the corporate property”

There are certain instances in which justice cannot be made until the corporate veil is lifted.

The Corporate veil can be lifted in the following cases:

1. Determination of real character of a company/ trading with the enemy
2. For the benefit of revenue
3. Under statutory provisions
4. Fraud or improper conduct
5. International misdescription of name
6. Fraudulent conduct of business
7. Holding and subsidiary companies
8. Provisions of tax laws
9. Group enterprises
10. Criminal acts

Some instances where the doctrine of lifting the corporate veil is applied are as follows:

1) Determination of Real Character of a Company/ Trading With the Enemy:

A company is an artificial person. It has no nationality. As it is not natural it cannot be loyal or disloyal similarly, it cannot be a friend or an enemy. At the time of war, it may become necessary to lift the corporate veil of a company to determine whether the company has an enemy character. In such a case the courts may in their discretion examine the character of persons who are in real control of the corporate affairs of the company.

In Daimler Co. Ltd. v. Continental Tyre & Rubber Co., (1916)2 AC 307case, a company was incorporated in England for the purpose of selling tyres manufactured in Germany by a German company, all the shares except one were held by the German subjects residing in Germany. The remaining one share was held by a British subject who was the Secretary of the company. Thus the real control of the English company was in German hands. During World War I, the company commenced an action to recover trade debts. The Court observed that since the real control of the “English Company” was in German hands, it would be considered to be of enemy nationality, and the company would not be allowed to file a suit in England to recover a trade debt, as England was at war with Germany.

2) For the Benefit of Revenue:

The Court has the power to disregard corporate entity if it is used for tax evasion or to circumvent tax obligations.

In Re. Dinshaw Maneckjee Petit, AIR 1927 Bom 371 case, the assessee was a wealthy man enjoying huge dividend and interest income. He formed four private companies and agreed with each to hold a block of investment as an agent for it. Income received was credited in the accounts of the company but the company handed back the amount to him as a pretended loan which was never repaid. This way he divided his income into four parts in a bid to reduce his tax liability. The Court observed that “the companies were formed by the assessee purely and simply as a means of avoiding tax and the company was nothing more than the assessee himself. It did no business, but was created simply as a legal entity to ostensibly receive the dividends and interests and to hand them over to the assessee as pretended loans”. The Court made him liable to be taxed on the aggregate income

3) Under Statutory Provisions:

Under the Companies Act, the individual person committing a wrong or an illegal act to be held liable in respect of offenses as ‘officer who is in default’. This section gives a list of officers who shall be liable to punishment or penalty under the expression ‘officer who is in default’ which includes a managing director or a whole-time director.

4) Misstatements in Prospectus:

Under Section 26 (9), Section 34 and Section 35 of the Act, it is made punishable to furnish untrue or false statements in the prospectus of the company.

5) Failure to Return Application Money:

Under Section 39 (3) of the Act, against allotment of securities, if the stated minimum amount has not been subscribed and the sum payable on the application is not received within a period of thirty days from the date of issue of the prospectus, then such officers are liable for punishment.

6) Reduction of Membership Below Statutory Minimum:

This section lays down that if the members of a company is reduced below seven in the case of a public company and below two in the case of a private company and the company continues to carry on the business for more than six months, while the number is so reduced, every person who knows this fact and is a member of the company is severally liable for the debts of the company contracted during that time. It is only that member who remains after six months who can be sued.

7) Misdescription of Name of the Company:

Under the Act, an officer of a company who signs any bill of exchange, hundi, promissory note, cheque wherein the name of the company is not mentioned in the prescribed manner, such officer can be held personally liable to the holder of the bill of exchange, hundi etc. unless it is duly paid by the company.

In Hendon v. Adelman, 1973 New LJ 637 case, the directors of the company were made liable for stating the company’s name as “L R Agencies Ltd.” on a cheque when the actual name of the company was “L & R Agencies Ltd.”

8) Inducing Persons to Invest Money in the Company:

Under Section 36 of the Act, any person who makes false, deceptive, misleading or untrue statements or promises to any other person or conceals relevant data from other people with a view to induce him to enter into either of following:-

1. An agreement of acquiring, disposing, subscribing or underwriting securities.
2. An agreement to secure profits to any of the parties from the yield of securities or by reference to fluctuations in the value of securities.
3. An agreement to obtain credit facilities from any bank or financial institution.

In such circumstances, the corporate personality can be ignored with a view to identify the real culprit and make him personally liable under Section 447 of the Act accordingly.

9) Furnishing False Statements:

Under Section 448 of the Act, if in any return, report, certificate, financial statement, prospectus, statement or other document required, any person makes false or untrue statements, or conceals any relevant or material fact, then he is liable under Section 447 of the Act.

10) Repeated Defaults:

Under Section 449 of the Act, if a company or an officer of a company commits an offence punishable either with fine or with imprisonment and this offence is being committed again within a period of 3 years, such company and officer are liable for punishment.

11) Fraud or Improper Conduct:

Section 339 imposes liability for fraudulent conduct of the company’s business. According to this Section “If in the course of the winding-up of a company, it appears that any business of the company has been carried on with intent to defraud creditors of the company or any other persons or for any fraudulent purpose, the Tribunal, on the application of the Official Liquidator, or the Company Liquidator or any creditor or contributory of the company, may, if it thinks it proper so to do, declare that any person, who is or has been a director, manager, or officer of the company or any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Tribunal may direct”. This principle was used in re. William C. Leitch Bros Ltd., (1932) 2 CH 71 (ChD).

12) Holding and Subsidiary Companies:

Under Section 129 of the Companies Act, 2013 a company is required to prepare a consolidated financial statement of the company and all its subsidiaries, and such a statement is to be placed before its members at the annual general meeting of the company.

13) Liability for ultra-vires acts:

Every company is bound to perform in compliance with its Memorandum of Association, Articles of Association, and the Companies Act, 2013. Any action done outside purview of either is said to be “ultra-vires”. Such operations of the company can be subjected to a penalty.
In Ashbury Railway Carriage & Iron Company Ltd v. Hector Riche, (1875) 44 L.J.Exch 185 case, where a company entered into a contract for financing construction of railway lines, and this operation was not mentioned in their Memorandum of Association and Articles of Association. The House of Lords held this action as ultra-vires and the contract, null and void.

14) Public Interest/Public Policy:

Where the conduct of the company is in conflict with public interest or public policies, Courts are empowered to lift the veil and personally hold such persons liable who are guilty of the act. To protect public policy is a just ground for lifting the corporate personality.

15) Agency or Trust:

Where a company is acting as an agent for its shareholders, the shareholders will be liable for the acts of the company. It is a question of fact in each case whether the company is acting as an agent for its shareholders. There may be an Express agreement to this effect or an agreement may be implied from the circumstances of each particular case.

16) Criminal Act:
When a crime is committed by a company, it is not only the company that is made liable to pay the prescribed fine, but all the officers in default are also similarly punishable. As a company cannot be sent to prison but the officers in default can be punished.

Conclusion:

It should be noted that the principle of Salomon v. A. Salomon & Co. Ltd. is still the rule and the instances of piercing the veil are the exceptions to this rule. The legislature and the courts have in many cases now allowed the corporate veil to be lifted. The act of piercing the corporate veil until now remains one of the most controversial subjects in corporate law. There are categories such as fraud, agency, sham or facade, unfairness, and group enterprises, which are believed to be the most peculiar basis under which the Law Courts would pierce the corporate veil. But these categories are just guidelines and by no means far from being exhaustive.

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