The Corporate Veil- An Absolute Right?


As the first newsletter issued by the commercial department of the firm, we believe it is essential we address the common misconception amongst the general public surrounding private limited companies. The ideology of separate legal personality has misled many directors and shareholders into believing they are somewhat ‘invincible‘ when it comes to liabilities of a corporation; this is true to an extent- that private limited companies provide shareholders or directors limited liability which treats the rights or duties of a corporation separate from the rights or duties of shareholders and directors. This legal concept was established by the landmark case, famously known as Salomon v Salomon.

In legal and business terms, incorporated companies are recognised as ‘legal persons‘ and any liabilities and/or obligations arising from its actions or omissions will rest upon the company itself without extending to those running and/or owning the entity. The legal jargon, ‘corporate veil‘ metaphorically symbolises the distinction between the company as a separate legal entity and the shareholders who run the company. This principle provides a protection right which insulates the individuals- shareholders, directors- running the company from personal liability, which is often the primary reason many start up incorporated companies.

The common misconception we spoke of earlier, is that this protection right conferred on shareholders and directors is an absolute right, however that is not the case. This right may be derogated from in instances whereby an incorporated company is being used as a vehicle for fraud or impropriety

In the recent case of Louw v Firestone Diamonds PLC and Others [2014] 1 BLR 138 (CA)- it was held that ‘attempting to pierce the corporate veil, in Botswana, it will only be pierced in unusual and exceptional circumstances to counter and neutralise an element of fraud, dishonesty or improper conduct in the establishment of or use of the company or in the conduct of its affairs’.

This provides a protection for third parties to companies i.e., customers, suppliers, agents etc. Companies can no longer be used to conceal illegal activities, defraud creditors and or to evade legal obligations or liabilities because any interested party- creditors, liquidators or contributory of the company- may make an application to court to declare those persons who knowingly carried out the fraudulent acts or omissions of the business liable for debts of the company.

The Companies Act (CAP 42:01) provides:-

  1. Section 481 – Responsibility of Directors and Other Persons for Fraudulent Conduct of Business;
  2. Section 482- Prosecution of Delinquent Directors and Others

  3. Section 499- Carrying on Business Fraudulently.

The abovementioned Sections of the Companies Act are the enforcement provisions that outline the penalties that may follow after directors and other persons- shareholders-have acted in their capacity and or used the company to conduct business fraudulently. Commitment to honesty, integrity, compliance to regulations and a completely transparent corporate veil are the attributes a business owner must have to never have the veil pierced.


Agatha Baiketsi
+267 319 1622
+267 77 887 888


Leave a Reply

Your email address will not be published. Required fields are marked *