If it ain’t broke, (immediately) fix it: Endorsing the essence of Corporate Governance through critical exploration of the doctrine of separate legal entity and lifting the corporate veil
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The concept of Corporate Personality gives the company separate legal existence and security over the capital and administrative control. It also provides limited liability to the directors and promoters which will restrain them from claiming ownership of the public and private limited organizations. But application of the doctrine of separate legal entity and limited liability is often used to shield individuals when a company is in loss or facing any irregularities. The doctrine of separate legal existence is generally used to avoid any responsibility towards the body corporate of the company. In such situations the piercing of the veil becomes essential to identify the enemy character within the company. However, Lifting of Corporate Veil has become a matter of discretion to corporations wherein adherence to Corporate Governance is a basic objective.
The body corporate or managerial persons while taking any unscrupulous or inadvertent decision fundamentally risk the legal entity and its stakeholders. In this context some of the important recent corporate frauds and debacles are a major concern where doctrine of separate legal entity eclipsed the corporate veil to avoid any personal liabilities.
This paper seeks to analyses the application of doctrine of separate legal entity and lifting the corporate veil by emphasizing the very specific circumstances in which these ‘risk-limiting devices’ became discretionary. There is a substantial gap in the intent of legislature and the application of these doctrines by the corporates that indicates a distinct need to review the application of doctrine of separate legal existence and corporate veil to encourage Corporate Governance in India. Exploring the inter-linkages between these doctrines within the premise of the principles of corporate governance is an utmost necessity to determine limited liability of members in the company. It is also required in the best interest of stakeholders of the organization and largely for the economy of the nation. With this objective, the paper explores the dynamics of a missing essence of Corporate Governance with the help of recent corporate debacles and frauds in India.
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