The Doctrine of Piercing the Corporate Veil: Its Legal Significance and Practical Application in Ethiopia

Enyew, Endalew Lijalem (2011) The Doctrine of Piercing the Corporate Veil: Its Legal Significance and Practical Application in Ethiopia. Masters thesis, Addis Ababa University.

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Business can be run through the medium of different forms of business organizations one of which is a company or a corporation. A corporation, once acquired its legal personality, enjoys certain attributes which differentiate it from other forms of unincorporated business organizations like partnerships and joint ventures. Among the attributes of a corporation, the separate legal personality and limited liability of a corporation makes it the chosen mode of business form. The attribute of separate legal personality amplifies the fact that, in the eyes of the law, a company is a person capable of enjoying rights and assuming obligations quite different from the physical or juristic persons who brought it into existence or who may be its members at any given time. The rights and obligations of the individual members are not those of the company and vice versa. The other attribute of a company is limited liability of share holders in which the company will alone be liable for the debts it incurs. That is, if the company becomes unable to pay its debts, the members of that company will not have to contribute towards paying the company’s debts out of their own private funds. The attribute of limited liability of a corporation is known as the veil or shell of incorporation, due to the protection it offers to the share holders by protecting or keeping them from the reach of outsiders (creditors). However, such privilege of limited liability may not always exist for some reasons including when the legal personality of a company is abused and used for illegitimate or unlawful purposes. If it is shown that the legal personality has been abused and used to the detriment of third parties (creditors), the theory of legal personality will be disregarded and it is looked upon as a collection of persons instead of a collection of capital. Consequently, the individual member (s), director (s) and manager (s) will be held liable for the wrongs caused through the use of the legal entity. This process is known as piercing or lifting the corporate veil. This work studies the grounds by which the corporate veil can be pierced under Ethiopian law and the role of courts in applying the doctrine after making a short survey of the common law, where the doctrine got its origin, and civil law legal systems. The study was conducted based on legislative analysis, interview, and case analysis. The findings of the study show that there are many possible statutory grounds of piercing the corporate veil and that judges also have certain degree of discretion in applying the doctrine of piercing the corporate veil in the interest of justice. Finally, this work suggests some recommendations which the writer thinks to be appropriate.

Item Type: Thesis (Masters)
Subjects: K Law > K Law (General)
Divisions: Africana
Depositing User: Selom Ghislain
Date Deposited: 24 May 2018 12:08
Last Modified: 24 May 2018 12:08

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