In what circumstances may the veil of incorporation be lifted at common law?
Company Law In what circumstances may the veil of incorporation be lifted at common law? Discuss The 1897 case of Salomon v Salomon & Co Ltd [1897] AC 22 firmly established the principle that a company has a separate legal identity to that of its members. These separate legal identities are protected by the veil of incorporation, which can only be disregarded by the courts in particular circumstances. The established situation where the court will lift the veil of incorporation is where a company has been formed to avoid legal obligations. For example, in Jones v Lipman [1962] 1 All ER 442, land was sold to a newly formed company to avoid an order for specific performance that would otherwise have been made against an individual. In this case, the court made an order for specific performance against both the individual and the company. In Gilford Motor Co v Horne [1933] Ch 935 CA, the court granted an injunction against both Mr Horne and a company he had formed to avoid a restriction in an employment contract. The corporate veil has also been lifted where a subsidiary has been found an agent of its parent company. An agency does not exist simply from the parent subsidiary relationship or from the control exercised by members over the company. In Smith Stone and Knight Birmingham Corporation [1939] 4 All ER 116, the court considered various factors relevant in
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Veil of Incorporation. Under the Companies Act 2006[1], the effect of registering a company gives it its own legal personality which becomes distinct from its members and creators.
Under the Companies Act 20061, the effect of registering a company gives it its own legal personality which becomes distinct from its members and creators. This separates the individuals within the company from legal liability; the veil of incorporation safeguards the company as a separate legal entity thus holding its own rights and responsibilities. The basis of the veil of incorporation comes from the concept of limited liability which requires the distinction between the assets of the individual shareholder and the assets of the company itself. The importance of the corporate veil is that a shareholder or owner does not acquire the debt of the company. Further to this, shareholders can only lose the amount they each invested if the company is sued and judgment is against the company. Various common law demonstrates that the veil is respected by the judiciary. However, there are situations where the individual will be held liable and the veil is lifted. Courts have lifted the veil in cases where companies have been established or used for fraudulent trading and also cases where an individual has executed wrongful or fraudulent trading. When looking at the veil of incorporation, a key case is Salomon v Salomon & Co Ltd2 which is described to be the case which best demonstrates the distinction of a company being a separate legal person from its shareholders (corporate
Coporate Law and Limited Liability. There are certain circumstances in which courts will have to look through the corporation, that is, lift the veil of incorporation, otherwise known as piercing the veil, and hold the shareholders of the company directly
Introduction A corporation under Company law or corporate law is specifically referred to as a "legal person"- as a subject of rights and duties that is capable of owning real property, entering into contracts, and having the ability to sue and be sued in its own name. In other words, a corporation is a juristic person that in most instances is legally treated as a person, and empowered with the attributes to own its own property, execute contracts, as well as ability to sue and be sued. One of the main motivations for forming a corporation or company is the limited liability it offers its shareholders. By this doctrine (limited liability), a shareholder can only lose only what he or she has contributed as shares to the corporate entity and nothing more. Nevertheless, there is a major exception to the general concept of limited liability. There are certain circumstances in which courts will have to look through the corporation, that is, lift the veil of incorporation, otherwise known as piercing the veil, and hold the shareholders of the company directly and personally liable for the obligations of the corporation. The veil doctrine is invoked when shareholders blur the distinction between the corporation and the shareholders. It is worthy of note that although a separate legal entity, a company or corporation can only act through human agents that compose it. As a result,
In certain circumstances the veil of incorporation has been lifted both judicially and by statute to reveal the reality of who owns and controls the company. The exceptions to the general principle are namely the agency and piercing the corporate veil.
By incorporation, a company acquires separate legal personality, that is, the company is recognized as a person separate from its members, a principle established in Salomon v Salomon & Co Ltd (1897) and with that in time came the modern phenomenon of the corporate group with subsidiary companies owned by corporate shareholders. One of the principles of separate legal personality is that the company itself, rather than its members or directors is liable on its contracts. This problem question involves a parent company, H plc, which carried on a removal business using three subsidiaries: P Ltd, S Ltd and T Ltd. In certain circumstances the veil of incorporation has been lifted both judicially and by statute to reveal the reality of who owns and controls the company. The exceptions to the general principle are namely the agency and piercing the corporate veil. Firstly, we will consider the case of M, a former senior manager of S Ltd, who obtained judgment against S Ltd in respect of his dismissal in 1992 but has since discovered that all S Ltd's assets have been transferred to P Ltd and that S Ltd has been struck off the register of companies. In Gilford Motor Co Ltd v Horn [1933] the court lifted the corporate veil on the grounds that the company was trying to avoid the impact of an order of the court. This was overruled in Ord v Bellhaven Pubs Ltd (1998). In the particular
Introduction to incorporation.
COMPANY LAW I. INTRODUCTION TO INCORPORATION . Definition of a "Company" A company is a "corporation" - an artificial person created by law. A human being is a "natural" person. A company is a "legal" person. A company thus has legal rights and obligations in the same way that a natural person does. 2. Companies and Partnerships Compared (a) A company can be created only by certain prescribed methods - most commonly by registration under the Companies Act 1985. A partnership is created by the express or implied agreement of the parties, and requires no formalities, though it is common to have a written agreement. (b) A company incurs greater expenses at formation, throughout its life and on dissolution, though these need not be excessive. (c) A company is an artificial legal person distinct from its members. Although in Scotland a partnership has a separate legal personality by virtue of s.4(2) of the Partnership Act 1890, this is much more limited than the personality conferred on companies. (d) A company can have as little as one member and there is no upper limit on membership. A partnership must have at least two members and has an upper limit of 20 (with some exceptions). (e) Shares in a company are normally transferable (must be so in a public company). A partner cannot transfer his share of the partnership without the consent of all the other
The "Veil of Ignorance"
The "Veil of Ignorance" In analysing John Rawls concluded version of just principles from his egalitarian liberalist standpoint, the methodology and justification utilised in reaching these principles must be closely scrutinised. Rawls initiates his reasoning, and then delineates it in a hypothetical model, from the primary conception that "each person possesses an inviolability founded on justice that even the welfare of society as a whole cannot override"1. From this basic inception he then generates a theoretical situation qualified by factors he perceives to either be, representations of actual circumstances or ideal provisions that are necessary to produce the most "fair" principles of justice. Within this hypothetical sphere of the Original Position he proposes an operation known as the "veil of ignorance"2 which seeks to embody a considered judgment that arbitrary contingencies are morally irrelevant in the formulation of society's principles of justice3. This model and in particular its employment of the "veil of ignorance" has been both widely criticised and commended. However, before positive or negative evaluations can be assessed it is important to comprehensively take account of the operation and influence of the "veil". Essentially the hypothetical situation constructed by Rawls is one of many models created under the social contract theory. The conception of
Company Law 5. The judiciary should be prepared to "lift the corporate veil" in the interests of justice. Discuss.
[22032] Company Law 5. The judiciary should be prepared to "lift the corporate veil" in the interests of justice. Discuss. Following the judgement of that found in Salomon1, it has become a fundamental principle in company law that the corporate veil ( or veil of incorporation), often enables members of a company a sense of limited liability, protected by the principle that constitutes the "separate personality" of the company. In the following discussion, we shall establish to what degree this ruling and subsequent ones are adhered to in regard to both a corporate sense, but also in a judicial capacity by the courts. Supported by Salomon, upon incorporation, a firm becomes a separate legal entity distinct and separate from the individuals contained within it, such as shareholders and its directors2. As a company is a corporation, it is therefore seen as a person before the eyes of the law, quite distinct from the individuals that are its members. In this way, as a distinct person, the company can own property, have rights and therein be subject to certain liabilities3. Furthermore, the company does not hold any property for example merely as an agent or trustee for its members4, they cannot sue individually or collectively to enforce rights which the company has against third persons otherwise than in exceptional circumstances5, nor can they be sued in respect of its
Hobbes and group incorporation
Jonathan Hastings POL 306 Pettit (Precept: Brown) 23 March 2012 On Hobbes’ View of the Formation of the Body Politic As an expression of Hobbes’ philosophy and political theory, The Leviathan represents a framework for the establishment and maintenance of a political system based on a number of underlying assumptions about the way in which humans interact with each other. Hobbes progresses from a cynical and decidedly negative assessment of human nature and a resulting a priori conclusion about a hypothetical unincorporated, pre-political state of human affairs to an assessment of the most effective scheme for political organization. He argues that the fundamental duty of a government is the preservation of order and to provide an alternative to the chaotic and violent state of nature. In addition to the motivations for forming a government that subordinates individual freedom to that of society as expressed (at least as Hobbes would prefer) through a sovereign tasked with keeping order, Hobbes also details the notional mechanisms through which that power consolidates and the necessary interactions among members of a group to organize collectively as distinct from their state as individuals. The way in which individuals come together to express their preference for order over violence through a contractual relationship with one another forms an important part of
'There is no justification for the doctrine of piercing the veil, which undermines the fundamental principles of company and creates unnecessary uncertainty' Discuss.
'There is no justification for the doctrine of piercing the veil, which undermines the fundamental principles of company and creates unnecessary uncertainty.' Discuss One of the fundamental principles of a company is the notion that a company is recognised as a separate from its members. This doctrine as first established in Salomon v Salomon1 states "Once the company is legally incorporated it must be treated like any other independent person with its rights and liabilities appropriate to itself2" The notion separate legal personality of a company is often expressed as the veil of incorporation and it is on this principle that it is the company itself rather than its members or directors which are liable on its contracts and its debts. However, in some circumstances the court has been asked to disregard the veil of incorporation, effectively 'piercing' it to reveal the reality of who owns and controls the company. In this, there is an inherent problem with the doctrine in that it appears to undermine one of the fundamental principles of company law, the doctrine of limited liability and has been said to create unnecessary uncertainty in Company Law cases. One initial debate which arises concerns the issue of when it is deemed acceptable for the corporate veil to be lifted. Sir Andrew Morritt V-C endorses one such argument in Trustor AB v Smallbone3 who concluded that
Lifting the corporate veil..Following the decision of the court of appeal in Adams v Cape Industries plc (1990) Ch 433
Shelley Holden P06293485 Company Law for Accountants LAWG2013 Assignment Number 1 Word Count: ,576 ,598 (including references) Following the decision of the court of appeal in Adams v Cape Industries plc (1990) Ch 433 discuss how far you agree with the statement that the courts ability to lift the veil of incorporation is now "limited to cases involving an " enemy corporation" or where the company's classed as a façade." The corporate veil is a legal term, meaning that the shareholders are immune from any debts of the company, unless any shares remain unpaid. The reason for this is because the company is classed as a separate legal entity. The case of "Salomon v A Salomon & co (1897)" is the foundation of any decision of the House of Lords in the area of company law. The effect of this decision was to show that in fact a company could not always be classed as a separate legal entity. Aron Salomon successfully ran a boot business for many years, in 1982 his sons started to take an interest in the business, Salomon therefore decided to change the business into a company called "Salomon & Co Ltd". At the time there was a legal requirement that there had to be at least seven shareholders, all of which happened to be family members, with Mr Salomon being the majority shareholder. He sold the business to the company with a part of the money being a debt to him.
