Legal Aspects of Business

Lifting the corporate veil is used when the company’s actions lead to defiance of rules, regulation by fraud or crime, etc. causing public inconvenience. In Solomon vs Solomon case the house of lords decided to consider the company as a different legal entity and delivered the judgement in favour of Solomon. But it was noticed that many companies used tis different entity case to deal with various issues illegally within the company. SO, in some cases where the is a benefit of doubt, the court is allowed to lift the corporate veil and make decisions based on the inferences.

The doctrine of lifting of corporate veil might be considered successful as they are able to deal with cases like Mallya’s. But, in case of mentioned cases with complex structures it is difficult to fins the owner of the company and therefore some changes must be made to the law to specifically deal with such issues. The purpose of creating a company is to benefit from it by generating profits (most common reason) legally and the purpose of defining it as a different legal entity is to hide its operational and other strategic activities from others. But, when there is a benefit of doubt about fraud or crime then it is reasonable to lift the corporate veil and look into the company’s activities to verify the claim.

In cases of such complex web structure usually it is difficult to identify the owner. We can set up some rules to prevent the cross ownership by restricting the companies to buy such shares. This technically comes under security or stock fraud like corporate misconduct, accountant fraud etc. and should be treated by the law accordingly. The activities like dummy corporations and fake orders can be revealed by lifting the corporate veil as it helps us to look into the company and make decisions. When the corporate veil is lifted if such a complex web is found then those companies can be considered under security fraud and action can be taken against accordingly.