Veil of Incorporation



Veil of Incorporation

Relevant Company Law Statutes

Directors of US companies have obligations and duties under the requirements of Corporations Act and statute, which makes fundamental to ensure that a concerned company does not acquire debts while insolvent. Under the pretenses of the Corporations Act, the acts of preventing insolvent trading falls under the parameters that dictate director's duty of care and diligence. Subjective standards are not the basis on which measurement of this duty of care and diligence is partaken. As such the laws have developed distinguishing principles that state that a director cannot possibly rely on their acquired knowledge, to form the basis of arguing that they had “no reasonable cause to expect the company was insolvent when a debt was incurred” (California Corporations Code; Rostron Carlyle, 2012). Given these principles, the director has no authority to contest on the basis of ignorance, with focus to company's insolvency. This is because if the director is not aware regarding the financial capabilities of the company, than they should be held accountable for not fulfilling their requirement duties of care and diligence (Klein & Coffee, 2010; Jue, 2012).

Corporate Veil

A legal concept, corporate veil, is the distinguishing factor between the personalities of its shareholders and the corporation itself. This concept is the basis on which protection is offered to shareholders with regards to being personally liable for the corporation's debts and other commitments (Feeney, 2010). Though, it has to be asserted that the concept of 'corporate veil' does not provide an impenetrable source of protection to its shareholders. If in case, judiciary establishes that a company has conducted its business in non-compliance with corporate legislation and its constituent provisions. The court has the right to hold the corporations shareholders as liable, personally. As such the shareholders are personally responsible to fulfill ...