Question

Mr. Rao holds 99.9\% of the equity of Timber Co. Ltd. Timber Co.’s timber stock was insured in Mr. Rao’s individual name and was destroyed by fire. Timber Co. sues the insurer for the loss. Which outcome is most consistent with the well-settled principle of separate corporate personality?

• A. The insurer must pay Mr. Rao because he is the beneficial owner of the shares
• B. The claim fails because courts will always pierce the veil where one shareholder controls a company
• C. Mr. Rao and Timber Company are jointly liable; each must bear a portion of the loss
• D. Timber Company can recover because the company is a separate legal person and alone owns the insured property

Hint:

Even a 99.9\% shareholder does not own company property—company and shareholder are legally distinct.

Answer 1

The Correct Option is D

Step 1: Doctrine of separate corporate personality.
Under the well-settled principle laid down in {Salomon v. Salomon \ & Co. Ltd.}, a company is a legal person separate and distinct from its shareholders, even if a single shareholder holds almost the entire share capital.
Step 2: Ownership of the property.
The timber stock belonged to Timber Co. Ltd. and not to Mr. Rao personally. Shareholding does not confer ownership of the company’s assets upon the shareholder.
Step 3: Effect of insurance taken in individual name.
Although the insurance policy was taken in Mr. Rao’s individual name, the loss suffered is that of the company, which is the true owner of the timber stock. The principle of separate corporate personality prevents treating company property as shareholder property.
Step 4: Rejection of veil piercing.
Mere dominance or near-total shareholding does not justify lifting or piercing the corporate veil. Courts pierce the veil only in exceptional circumstances such as fraud or sham, which are absent here.
Step 5: Conclusion.
Applying the doctrine of separate corporate personality, Timber Co. Ltd., being the owner of the destroyed timber stock, is entitled to recover. Therefore, the correct answer is (D).