"Alter Ego" is a derived term from Latin. Literally translated, it means the "Other I". More colloquially it can be understood as the second self or a person's clone. It is a common tenet that a company is a separate legal entity from its shareholders and directors. This common law principle grants immunity to the shareholders and directors from being held liable for the debts as well as criminal liabilities of the corporation. The doctrine of alter ego, however, provides for an exception to this presumption in law. Alter ego is the doctrine which prevents the stakeholders of the corporation, i.e., shareholders and directors from taking the refuge of doctrine of separate legal entity. Hence, the Doctrine of alter ego is based on lifting of the corporate veil between the directors/ shareholders and the corporation and treating both as one entity.
The doctrine of alter ego is based on the assumption that the corporation as well as the shareholders and the managing directors are the alter egos of each other, i.e., one is the shadow or reflection of the other or can be understood as two sides of the same coin. Hence, the courts can rely on alter ego doctrine when they find that there is a very thin line of distinction between the shareholders/ directors and the corporation or a limited liability corporation.
LEGAL POSITION OF THE DOCTRINE OF ALTER EGO IN OTHER JURISDICTIONS:
POSITION IN THE UNITED STATES OF AMERICA:
In the case of MCI Telecommunications Corp. v. O'Brien Mktg., 1 it was reiterated that the federal common law alter ego rule requires that three elements be proved in order to pierce the corporate veil, i.e., the essentials for applicability of alter ego rule are:
"(1) Control, not mere majority or complete stock control, but complete domination, not only of finances, but of policy and business practices in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and (2) Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest and unjust act in contravention of plaintiff's legal rights; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of." In fact, it is interesting to note that the concept of alter ego has also been extended by the Appellate court in an appeal from...