For those of us who have taken the time to consult our attorney-at-law on the structure we should create to carry on our business, we have probably been told that, while a little costly to incorporate, a company is the best vehicle we can use to do so since it protects our personal assets.
This is because there is a general rule of law that a company is a different or separate person from its owners and or its controllers.
From time to time, you might hear references to “the veil of incorporation” or “the corporate veil”. These references simply mean that, by the simple act of creating a company, individuals and or other corporate persons put some distance between themselves and third parties with whom they might conduct business, for any acts they may take on the basis that when they do so, they are acting for the company.
However, we all know that with all general rules, there are exceptions.
Exceptions to the Veil of Incorporation
- The single economic unit: Where it is considered that a subsidiary company ought to be regarded as one with its parent or its group of companies instead of allowing its legal right to its own personality.
- Fraudulent and wrongful trading: When a company is wound up, if it appears that its business had been carried on with intent to defraud creditors or others, a court may decide to hold persons, usually directors, personally liable for the company’s debts or liabilities.
- Act of Parliament: Eg. by the Companies Act, for negligence or recklessness in doing certain things required by the Companies Act. Specifically, where companies concerned are public companies, meaning, they have offered and sold shares to the public, not only incorporators and directors, but shareholders and other specified persons may be held liable for the acts of the company.
- Public interest: Eg. Where a company is being used by its shareholders/members or management to evade taxes, avoid contractual obligations, avoid national security and other restrictions.
- Agency: Where the company is being used as an agent of another person.
- Corporate structure as a façade: Where the company is deliberately set up to avoid or evade liabilities but not the true actor.
- Interests of justice: Whenever the circumstances persuade the courts that it is just to do so. This last category is the door opener to extend the list above.
The law is dynamic, an ever-changing creature which adapts to human creativity and ingenuity. As such, the exceptional instances set out above are not exhaustive but they do summarise the types of situations in which the law will “lift the corporate veil”, or in other words, raise the curtain and hold accountable the persons whose actions would otherwise be protected by the company said to be responsible.
Grenada Bar Association