This document discusses key concepts in company law including separate legal entity, lifting of the corporate veil, and highlights of the Companies Act 2013 in India. It begins with explaining separate legal entity/corporate veil which separates a company's legal personality from its shareholders and protects them from liability. It discusses landmark cases like Salomon vs Salomon which established this principle. It then explains circumstances where courts may lift the corporate veil and ignore separate personality. Finally, it provides an overview of major changes and provisions introduced in the Companies Act 2013, such as the introduction of one person companies, small companies definition, director eligibility, and increased accountability of companies.
1. 2021
Separate Legal Entity
&
Lifting of Corporate Veil
(Companies Act, 2013)
Classroom Deliberations
CA (Dr) Prithvi Ranjan Parhi
1
CA (Dr) Prithvi R Parhi
XYZ
Company
Ltd
2. Companies Act, 2013
• Sec 2(20) “company”
• means a company incorporated under this Act
or under any previous company law;
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3. The concept of Corporate Veil
(Separate Legal Entity)
• A legal concept that separates the personality of
a company from the personalities of its
shareholders, and protects them from being
personally liable for the company’s debts and
other obligations.
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4. Saloman Vs Saloman & Company Ltd
Doctrine of Separate Legal entity
• D
CA (Dr) Prithvi R Parhi 4
Aron Saloman
Shoe Business
Company
Incorporation
Saloman & Co
Ltd
Proprietorship
Firm
Acquired for 38,000£
as consideration
Saloman & Co Ltd
Members Directors
Aron Saloman :
20,001 Eq Sh
Wife : 1 Sh
Daughter : 1 Sh
4 Sons : 1 sh
each
Aron Saloman
Sons
Creditors
Aron
Saloman :
10,000 £
Debentures
charged
against
assets
Liquidation process after 1 year
Assets 6,000£
Liabilities
16,000 £
Court Verdict
Aron
Saloman
Saloman &
Co Ltd
Different
5. Lee Vs. Lees Air Farming Co Ltd
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Mr Geoffrey Lee Incorporated a Company
Lee’s Air Farming
Company Ltd
3000 Shares Director Chief Pilot
2,999 Shares
Mr. Lee
Mr Lee
Mr Lee
with Salary
Died
Mrs Geoffrey Lee
(Widow)
Claimed compensation
Employee compensation
Act
Insurance Co Argument
6. Lifting / Piercing of Corporate Veil
• It refers to the situation where a shareholder is
held liable for its corporation’s debts despite
the rule of limited liability and /of separate
personality.
• The veil doctrine is invoked when shareholders
blur the distinction between the corporation
and the shareholders.
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7. Lifting / Piercing of Corporate Veil
CA (Dr) Prithvi R Parhi 7
Corporate Personality
shall be Ignored
Circumstances
Statutory Provisions Judicial Interpretations
1. Misstatement in Prospectus
2. Failure to return share
application money
3. Misdescription of name
4. Fradulent conduct
1. Dinshaw Manikjee- Tax fraud
2. Gilford Motors Co Vs Horne -
Employee Fraud
3. Dailmer Co Ltd Vs.
Continental Tyre & Rubber
Co Ltd –Dealing with Enemy
8. Dinshaw Manikjee
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Dinshaw Manikjee
Transferred profits
To 4 Shell Companies
9. Gilford Motors Co Vs Horne
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Employee
Signed Anti-Competition
Contract
Incorporated a Company &
Competed
10. Dailmer Co Ltd Vs. Continental Tyre & Rubber
Co Ltd –Dealing with Enemy
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German Citizens
(Dailmer Co Ltd)
Incorporated Co in
England
England Co
(Continental Tyre)
Trade Debt Recovery
case
Supply Material
Argument
Continental Tyre ( Eng
Co) Refused to pay
Separate Legal
Entity
Verdict
To lift Corporate
Veil
Holds all Shares
except 1
11. Highlights of Companies Act, 2013
• Introduction of One Person Company (OPC)
• What is a small Company (Capital < 50Lakh or Turnover < 2 Crore)
• Members for private company ( 50 to 200)
• Immediate changes in stationery (Name, Address, CIN)
• Commencement of business
• Eligibility age to become Managing Director or whole time Director (21
years)
• Maximum 15 directors
• Resident Director
• Format of Statement of Profit & Loss
• Auditors Appointment (5 years/ 10 years)
• CSR (2% of past 3 years profit)
• Definition of Financial Statement
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12. Highlights of Companies Act, 2013
• The concept of “dormant companies” introduced (companies not
engaged in business for two consecutive years can be declared a s
dormant).
• National Company Law Tribunal introduced.
• Provision of self regulation with disclosures/transparency instead of
government approval based regime.
• Companies are required to go for maintenance of documents in
electronic form.
• Faster merger and acquisitions including short mergers and cross
border mergers.
• For companies which have net assets of 1 cr. or less, then official
liquidators are empowered with adjudicatory powers.
• Concept of independent directors included as a statutory requirement.
• Women director for prescribed class of companies.
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13. Highlights of Companies Act, 2013
• The term “Key Managerial Personnel” and “Promoter” has been defined to affix
the responsibility on main functionaries of the company.
• Duties of director to shareholders, employees, the community and the
environment defined.
• Listed companies are required to have one director representing small
shareholders.
• Companies Act, 2013 has put a cap on the number of directorship up to 20
companies of which 10 can be public companies.
• Search and seizure of documents, during investigation, without an order from a
magistrate.
• Freezing assets or disgorgement of illegal gains of company under investigation.
• Stringent norms made for the accepting the deposits from the public.
• Internal audit for bigger companies and auditor is not authorized to perform
specified non audit services.
• Substantial civil and criminal liability for an auditor in case of non compliance.
• National Financial Reporting Authority (NFRA) to be constituted.
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