What does the term 'veil of incorporation' refer to?

The term 'veil of incorporation' refers to the legal distinction between a company and its shareholders, which is encapsulated in the concept of the separation of a company’s legal identity from its shareholders. This principle embodies the idea that a corporation is an independent legal entity, separate from the individuals who own it.

As a result, shareholders are typically not personally liable for the company’s debts or liabilities beyond their investment in shares. This legal separation allows the company to enter into contracts, own property, and be subject to legal actions independently of its shareholders.

This concept plays a crucial role in business law, as it provides a level of protection for shareholders and encourages investment by limiting financial risk. Understanding this veil is fundamental in recognizing the implications of corporate structure on liability and governance.