Divya Bharadwaj, O.P. Jindal Global Law School
Introduction:
A company is said to have a corporate veil, when it has established itself with a personality that has a legal existence independent or separate from its shareholders, directors, officers, and creators. However, while the liability protection of a corporation is imperative it is not entirely absolute. This very corporate veil is lifted in situations where the court attempts to reach behind the veil to reveal the true character of the specified company. Whenever an incorporated company consciously tries to avoid their respective legal obligations or is being used as a vessel to avoid an encounter with the force of law, it is said that the courts possess the power/authority to pierce the corporate veil i.e., the legal personality of the company and proceed to try them as if no company existed. It is often lifted to hold a parent company liable for its subsidiaries so that the distinction between the owners and the business is stripped away.
Shell and Shelf Companies:
Shell companies are non-public entities that are created to protect or hide another company’s assets. They tend to exist only on paper and typically have no physical premises, revenue, or significant assets or even employees but do hold on to bank accounts and investments. These companies are not innately illegal as they can be formed quickly and inexpensively into the legitimate/formal financial system and can be used as vehicles to raise funds, hold stocks, or work as limited liability trustees. However, shell companies can be misused for illegal purposes such as money laundering or storing illegal funds, done in a way that the ultimate beneficial ownership is obscured from the eyes of the law or any layman, allowing corporations with free access to filter money to offshore accounts.
