Corporate veil, is a legal concept which distinct the identity of the company from its members that is the shareholders and directors. Corporate veil shields members from the liabilities arising out of the company, the veil or curtain act as a protection to the members in regards to the company’s liability.

In the case of Salomon v. Salomon [1897] AC 22, the House of Lords scrutinized the particulars of the case to deliver a seminal ruling in corporate law. The court’s methodology centered on the concept of corporate personality and the principle of limited liability. Lord Halsbury expounded that a corporation is a distinct legal entity separate from its shareholders, thereby upholding the doctrine of corporate veil. This doctrine essentially safeguards shareholders from personal liability pertaining to the debts of the corporation.

This principle of corporate veil however has been used as an escape by members of the company when there is abuse and misuse that leads to liabilities in the company.

Thus, due to the common practice where directors take advantage of corporate veil by using company as a shield to mask fraudulent and illegal dealings done by directors and shareholders of the company.

Establishment of Lifting of Corporate Veil in Tanzania

In Tanzania, the principle of lifting the corporate veil was established in the case of Yusuf Manji v. Edward Masanja & Another, Civil Appeal No. 78 of 2002 where the Court of Appeal held that, it would serve the best interests of justice to lift the corporate veil and hold the directors of the company liable where it is apparent that the directors were concealing assets of the company in their own names.

Grounds for Lifting of Corporate Veil

There are several grounds that can lead to lifting of corporate veil by the court such as

1. Fraud or improper conduct,

Corporate veil will be lifted by the court to find out the intention of the formed company whether it was formed to defraud, misrepresent or to avoid legal obligations. The court may pierce the corporate veil to hold the responsible persons accountable. The Court of Appeal of Tanzania in the case of Millicom Tanzania NV V James Allan Russels Bell and Others, Civil Reference No.3 of2017 [2018] TZCA 355 held that: "We are aware that, piercing the veil entails looking behind the person in control of the company not to take shelter behind legal personality where fraudulent and dishonest use is made of the legal entity."

2. Personal liability of members,

This liability is fixed to persons who are responsible with management of the company such as directors. Veil can be lifted to expose their wrongful activities such as commingling of corporate assets with personal assets.

3. Agency or trust,

When a company acts as an agent or trust of the shareholders the veil may be pierced to make the shareholders accountable for their actions.

4. Tax evasion

When a company is formed to defraud and evade from paying tax then their corporate veil will be lifted to hold members responsible liable.

5. Protection of public policy

Courts may also pierce corporate veil and separate the identity of the company from that of its members so that to hold shareholders or directors personally liable for the sake of protection of the public interest.

Conclusion As much as the company wears a mask that shields the officers and directors behind it from being seen, yet, there are exceptions to the principle of legal personality. There are two situations when the court may lift the veil of incorporation, that is the statutory lifting of the veil and judicial lifting of the veil.

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