Mr. Raj formed a company with a capital of ` 5,00,000. He sold his business to another company for ` 4,00,000. For the payment of sale, he accepted shares worth ` 3,00,000 (30,000 shares of `10 each). The balance 1,00,000 was considered as loan and Mr. Raj secured the amount by issue of debentures. His wife and three daughters took one share each. Owing to strike the company was wound up. The assets of the company were valued at ` 60,000. The debts due to unsecured creditors were ` 80,000. Mr. Raj retained the entire sum of ` 60,000 as part payment of loan. To this, the other creditors objected. Their contention was that a man could not own any money to himself, and the entire sum of ` 60,000 should be paid to them. Examine the rights of Mr. Raj and other creditors. Who will succeed?

Separate Legal Entity: Corporate Veil refers to a legal concept whereby the company is identified separately from the members of the company. The term Corporate Veil refers to the concept that members of a company are shielded from liability connected to the company’s actions. If the company incurs any debts or contravenes any laws, the corporate veil concept implies that members should not be liable for those errors. Thus, the shareholders are protected from the acts of the company. The leading case law of Saloman Vs Saloman and Co. Limited, laid the foundation of concept of corporate veil or independent corporate personality. A company is a person distinct and separate from its members. Based on the above discussion and provisions, Mr. Raj was entitled to the assets of the company as he was a secured creditor of the company and the contention of the creditors that Mr. Raj and the company are one and same person is wrong.