When the Corporate Mask Falls: Piercing the Corporate Veil in Nigerian Jurisprudence

In business, one principle defines how companies operate. A company lives separately from its owners. This is called corporate personality. It lets your company buy property, sign deals, borrow money, sue, and be sued without putting your personal assets at risk.

This principle comes from the famous case Salomon v. Salomon. That single case reshaped business worldwide and in Nigeria.

The Lesson from Salomon v. Salomon

Aron Salomon transformed his boot-making business into a limited company. He held most of the shares, and his family owned the rest. When the business failed, creditors tried to make him personally responsible for its debts.

The court refused. It ruled that the company was a separate legal person. The company was not the same as Salomon. From that day, Salomon v. Salomon became the foundation of corporate law.

In Nigeria, Section 42 of the Companies and Allied Matters Act 2020 enforces this principle. Once you register a company, it becomes a legal entity distinct from its owners and directors. Nigerian courts have confirmed this in cases such as Union Bank of Nigeria Plc v. Orharhuge.

Simply put, the company acts as its own person.

Why This Matters for Business Owners

This separation gives business owners peace of mind. You can take risks without worrying about losing your personal house or savings. Incorporation encourages entrepreneurship and investment because people know their personal assets remain protected.

But this protection has limits. If business owners misuse the company to commit fraud, cheat investors, or harm employees, courts can intervene. This is called piercing the corporate veil.

What Piercing the Corporate Veil Means

When courts pierce the corporate veil, they look beyond the company’s name to see who actually holds responsibility. Directors or owners become personally accountable if they use the company to commit fraud or injustice.

The Companies and Allied Matters Act 2020 provides examples of when this happens:

• A company operates without the minimum number of members required by law (Section 118)

• Directors misuse company funds or property (Section 316)

• The business continues recklessly or with intent to defraud (Section 672)

• The company fails to display its name and registration number properly (Section 729)

In these cases, directors lose their protection and take responsibility for debts or penalties.

Piercing the Veil in Employment Cases

This principle also applies to employees. When a company mistreats workers or avoids responsibility, courts can hold the real decision-makers accountable.

For example, in Mr. Essien Aquaisua v. Direct on Data Ltd and Others, Mr. Aquaisua lost access to his office and online work systems without any termination notice. The company claimed he abandoned his job.

The court found that the director made the decision personally and used the company as a cover. Both the company and the director faced responsibility. This case shows that corporate personality cannot protect owners who act unfairly.

How the Principle Protects Fairness

The doctrine of Piercing the Corporate Veil in Nigerian Jurisprudence ensures fairness. It protects employees, creditors, and business partners when companies act wrongly.

It also reminds business owners to run their companies ethically. Transparency, proper records, and honest decisions matter. Nigerian courts step in when necessary to protect people and prevent abuse.

Balancing Protection and Accountability

Courts must balance the principle carefully. Overuse could discourage genuine entrepreneurs. Ignoring it allows misconduct to continue.

The goal is clear. Protect honest business owners while holding bad actors accountable.

Conclusion

For Nigerian businesses to thrive, companies must operate transparently and ethically. Corporate governance and labor protections need improvement. Laws should protect employees of insolvent or fraudulent companies.

When directors know they can face personal liability for misuse, they are more likely to make responsible decisions. Salomon v. Salomon and the principle of Piercing the Corporate Veil in Nigerian Jurisprudence are more than legal rules. They are about trust, fairness, and running businesses responsibly.