It is common to hear people say that a registered company has a separate entity from its promoters, shareholders, and directors. 

 

It is true.

 

It is also common to hear people say that a company can sue and be sued. 

 

It is true.

 

It also common to hear business and legal minds claim that the assets and liabilities of the business are solely owned by the business and cannot be passed on to the promoters or business owners.

 

This is also very correct.

 

So a company maintains a case in court as xyz Limited. And an NGO maintains an action in court in the name of “Incorporated Trustees of XYZ’       

 

Now, here is what you were never told and what you need to be careful about.

 

There are limitations to what a company can do and get away with as an entity. There are things that if the company does, its corporate personality privilege will be eroded and the directors and shareholders will answer for them individually. 

 

I bet you never heard this before. 

 

Hear me. The concept of business personality is a veil that shields the directors and shareholders like a veil. So the company stands in front of them like a shield. 

 

But when certain things happen, that veil is lifted. It is called LIFTING THE VEIL OF INCORPORATION. 

 

ITS very important that you put these matters to heart. They will guide your business choices and collaboration plans.

 

So what are these things that will make the government of the state lifts the Veil of Incorporation? 

 

Let’s examine 3 of them. 

 

As a registered company, the company will have a memorandum and articles of association that will contain its powers. Those powers are usually called objects. 

 

The objects are the strict guidelines for activities the company can engage in. Any activity outside those objects listed will bring the wrath of the government down on the shareholders and directors. 

 

This is further strengthened by such businesses carrying out activities that require a certain government license to carry out, which license the company does not have.

 

For example, A company that is registered to engage in commerce. That is selling fast-moving consumer goods. The day the directors decide to engage in the business of a travel agency, they are likely to incur the anger of the government of the land and the Veil of Incorporation will be lifted.  

 

So engaging in activities outside their powers will lead to the Veil of Incorporation being lifted.

 

Insider trading. This is more common with publicly quoted companies. In simple terms, this means manipulating the cost of shares on the inside and then using that to influence the stock market to your advantage. It is so so wrong. 

 

This singular fact is one of the major activities that crash the operations of banks. 

 

Banking regulations expressly forbid this.

 

Criminal activities. A company being a juristic person can engage in some direct criminal activities, especially financial ones. Such activities could be money laundering, obtaining by false pretenses, forgery, or misrepresentation of facts.

 

These activities go to the root of the legal existence of a Company. They will be handled as crimes against the state.

 

So how does the government handle such offenses? If will the directors to court and maybe the shareholders depending on a lot of factors. 

 

The punishment for their offenses is either a jail term or a fine or both or an option of either/or.

 

So give yourself a paradigm shift so you will be properly guided in your business dealings.

 

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