SITUATION

1. Romeo and Juliet formed a company called Laila Enterprises used for buying and selling
carpets. A newly appointed director, Majnu created another company using the documents of Laila
Enterprises. Romeo and Juliet did not know about this plan of Majnu. Majnu was making a lot of
money from his new company using all the resources of Laila Enterprises.

State whether veil lifting can arise in this situation. Give reason for your advice

Advice
Ans: Yes, the corporate veil lifting can arise in this situation. The outstanding feature of a
company is its independent corporate existance. According to law a company has a distinct
legal entity which can sometimes be used by its owners to take advantage of its dictinctive
personality in order to gain profit from the company but not be liable for any type of loss or
liabillities owned by the company. Since the newly appionted director, Majnu created
another new company using the documents of their combined company without the concern
of Romeo and Julie, the other directors of the company, so any sort of loss or liabilities
owned by the new company would held their combined company liable without Romeo and
Juliet not even knowing about it so it is clear that Majnu wanted to take advantage of the
companies distinctive characteristics in order to make profit from the new company and not
be liable to any sort of loss and liabilities owned by the company by hiding under the
corporate veil, which makes him a fraud. So the corporate veil lifting can arise in this
situation. (Case: “Jones and Lipman”) (1962)
 1. Mr Ford and Mr Toyota owns a company to buy and sell cars, called Buy & Sell Ltd.. Mr
Toyota, a second director, wants to start a new business for buying and selling cars.. Without telling
this to Mr. Ford, Mr Toyota started this new business of buy and sell cars which adversely affected
the business of Buy and Sell Ltd. A few years later Mr Form came to know about this and wants to
sue Mr Toyota for loss of profit in his business.

Advice on whether the veil should be lifted in this case. Give reason for your advice.

Ans: If Mr Toyota started his new business by taking the permission of his partner of the combined
company or did the business by opening a new separate company then he wouldn’t have done
anything wrong. But since Mr Toyota started his new business without any concern of his partner of
the combined business which caused harm to their business and also did it without opening a separate
company so any loss or harm caused to their combined business was due to the actions of Mr Toyota
and not due to any actions of any other separate company or separate legal entity. As the business of
Buy and Sell Ltd.. was adversely affected by the acts of Mr Toyota so the company or the company
owners could held Mr Toyota liable for the loss that the company had to bear due to his acts.
According to law since a company is a distinct legal entity so a company has the right to seek
damages and file case by being represented by a person for any sort of defamatory actions or wrong
actions done against the company that could bring harm to the companies name or business. So Mr
Ford on behalf of their combined company has full right to file a case against MR Toyota and veil
should be lifted. (Case: “Jones and Lipman”) (1962).
 1. Tony Stark, Peter Parker and Dr Strange were the owners of Thanos Leather House. Peter
always made it clear that he would never be an active member in the company. He also did not
know about the work of the company. After one year Peter opened his own company buying and
selling of leather goods which killed Tony and Dr Strange’s business of Leather House.

Advice whether the veil should be lifted in this case. Give reasons for your answer.

Ans: When the combined company, Thanos Leather House was created Peter made it very clear that
he would never be an active member in the company and also had no idea about the work of the
company. So when Peter started his own company of buying and selling of leather goods he had no
idea about their combined companies work, also it was not necessary for peter to let his other other
partners of the combined company know about his new business since it was his business only and
was a completely separate business according to his point of view which had nothing to do with his
combined business with them, moreover since he did the business by opening a separate company so
according to law this company had a completely separate legal entity which also had nothing to do
with their combined company, so peter was not doing any kind of fraud in here since being separate
and individual members of the company one cannot be held liable for the defaults of the company so
the corporate veil should not be lifted if Peter tries to defend himself in the court . (Case: “Salomon V
Salomon & Co. Ltd”) (1897).