An analysis of piercing the corporate veil and striking a balance between the separate legal personality of a company in South Africa

Abstract

The foundation of company law rests on the principle of separate legal personality of companies.1 Separate legal personality means that a company has its own rights and liabilities distinct from those of its holders and controllers. Its holders and controllers, as a result, enjoy limited liability which means that they are not normally held responsible for the company’s debts.2 Separate legal personality can be seen as a “veil” which separates the company from its shareholders and directors.3 An exception to this principle is the doctrine of piercing the corporate veil which essentially involves the courts, in certain circumstances, ignoring the separate legal personality afforded to companies and holding directors/shareholders personally liable.4 The focus of this research report is to analyse this doctrine looking at its application in terms of legislation (namely: the Companies Act5) and in terms of the common law (as found in case law). This research report will also analyse how the courts have attempted to strike a balance between upholding the separate legal personality afforded to companies and piercing of the corporate veil. The following chapter is an introduction to the research report and, as such, it will set out the research objectives, research questions, problem statement and research methodology. This chapter will also provide an overview of the proposed content for each chapter and it will explain the delimitations and limitations of this research report.