Once incorporated, a company unlike other business entities is deemed legally to have a life of its own, having what is called a “juristic personality”, meaning that a company is legally separate from its owners and management and it is also liable for actions carried out in its name by its management.
This article will be looking at the principle of lifting the veil of incorporation which means the process of legally setting aside the barrier of juristic personality and extending the reach of a company’s liability to its management.
The focus of this article will be on the topics of :-
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– The legal definition of the principle of lifting the veil.
– Grounds for lifting the veil of incorporation.
– The limits of corporate juristic personality regarding lifting the veil of incorporation.
What exactly is the principle of lifting the veil of incorporation?
Lifting the veil of incorporation or “lifting the veil” means the setting aside of the principle that a company is a distinct and separate entity from its management and ownership for the purpose of extending civil or criminal liability to its management and/or ownership.
What are the grounds for lifting the veil of incorporation in Nigeria?
The grounds for lifting the veil of incorporation in Nigeria are :-
– A reduction in the number of directors of a company as prescribed by the Companies and Allied Matters Act 2020.
– A failure to comply with established business ethics under the Companies and Allied Matters Act 2020 .
– Using a company’s juristic personality as a cover for asset stripping aimed at frustrating the company’s creditors.
– A failure to declare shareholdings as a shareholder of a company.
– In situations of liability of a company’s directors advancing a personal guarantee for loans taken by the company.
– Situations of personal liability for failure to make refunds to the company.
– A misappropriation or misapplication of funds or properties belonging to a company.
What are the limits of a company’s juristic personality in practice?
The concept of juristic personality for companies as explained in the case of Salomon v Salomon, confers the characteristics of perpetual succession and legal personality (having the ability to sue and be sued) different from those of its owners and management.
This legal separation becomes dissolved where the directors act in a manner that renders them responsible for actions taken on behalf of a company or actions taken outside the scope of powers granted to them in the company’s articles, a very good example of this being tripartite contractual documentations signed by the directors and backed by a written resolution.