Lifting of Corporate Veil in the Company Law

  • January 27, 2023
  • Registrationwala
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With the economic growth in the corporate world, the Indian corporate sector encounters daily fraud, insider trading, as well as misinformation. These violators are not some fringe elements but a part of the Company’s top personnel. The term ‘Lifting of Corporate Veil’ came into existence to expose the members of a registered Company’s actions. This article will detail the concept of Lifting the Corporate Veil as per the Companies Act of 2013.

 

What is a Corporate Veil?

The Companies Act of 2013 defines a Corporate as a separate Legal Entity. It is distinct from its members. As dreamy as the concept sounds, in actuality, a registered Corporate is an Association of its Beneficial Owners as well as its assets. This lucrative fiction created by the Corporate Legislative is termed the Corporate Veil.

 

What does lifting a Corporate Veil means?

The Lifting of the Corporate Veil is defined, per the Companies Act of 2013, as the transparency of treating a Company as a separate legal entity. The Veil lifting ignores the corporate personality of a Company and directly looks back at its actual owners in control.

 

Company’s Advantage: Separate Legal Entity

The separate personality concept is a regulatory advantage to the ‘Limited’ Corporate structures. The Company must harness it for lawful purposes. But sometimes, fraudulent use of this benefit renders the Authority to unveil the responsible individuals hiding behind the curtain of a supposed corporate personality.

At time of need, the Authority will break away from the accused Company’s shell of Legal Entity and file the requisite lawsuit against the violators convicted of committing such offense. 

 

Corporate Veil working as a Safeguard for Members

The Corporate Veil works as a safeguard to protect the members of the Company from its objectionable or tried actions. If a company violates any corporate law or incurs any liability from its saved debts, its members cannot be held liable for any debts or rule-breaking. The Shareholders get protected from such acts.

 

Cases of Lifting the Corporate Veil as per Companies Act

We have detailed to you some of the cases which can trigger the Lifting of the Corporate Veil of a Corporate in India, as defined under the Companies Act of 2013. 

Misinformation to subscribed Shareholders on Company’s prospects

If a company misinforms its prospectus, then the following entities authorized for the issue of the such prospectus will be held liable to compensate for every loss incurred to share subscribers:

  • Company
  • Directors
  • Promoters
  • Other involved Individuals

Such entities can be punished with a jail term of not less than six months, extendable upto ten years. The dynamic personalities will also be liable to a financial penalty not less than the sum promised in the fraud. The Authority can ask the defaulter to pay at most three times the amount involved in the committed fraud.

Conflicting Nomenclature of the Company

The Companies Regulations of 2014 instructs the Firm to print its name on every official document, including the following:

  • Hundis
  • Contracts
  • Promissory Notes
  • BOE
  • Cheque
  • Order
  • Other related documents

If a company’s personnel signs on behalf of the Company any of the aforementioned, then the signatory is liable to the shareholder for the improper name registration of the Company.

Fraudulent Conduct of the Company & its Personnel

When a Company is about to close, it comes out that any business has been carried on with intent to cheat the creditors or any other individual, or for any illicit purpose, if the Tribunal thinks it proper so to do, be directed in person liable without limitation to obligation for all or any debts or other obligations of the Company.

 

Know more on lifting Corporate Veil…

To know more reasons regarding lifting the Corporate Veil of a Company, connect with the Incorporation Experts at Registrationwala. Our seasoned professionals will brief you on every aspect of the Veiling procedure defined in the Companies Act of 2013. 

 

 


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