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In what circumstances may the veil of incorporation be lifted at common law?

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Introduction

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. ...read more.

Middle

In Smith Stone and Knight Birmingham Corporation [1939] 4 All ER 116, the court considered various factors relevant in determining whether a subsidiary was in fact acting as an agent of the parent. The issues to consider were whether profits were treated as profits of the parent, whether the parent governed the business of the subsidiary and whether the parent was in effectual and constant control. In the past, the corporate veil has been lifted where a group of companies have been viewed as a single economic entity. This argument was raised successfully in the case of D. H. N Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852. In this case, the Court of Appeal were prepared to treat the companies in a group as one economic entity; thereby, allowing the ...read more.

Conclusion

In the 1990 case of Adams v Cape Industries plc [1990] Ch 433, the single economic entity and agency arguments were raised in an attempt to establish that an English company had a presence in the United States. The Court of Appeal made clear that there was no general principle that companies in a group would be regarded as one. Only if the wording of the statute demanded this approach, would it be followed. As far as an agency was concerned, the court took the view that there was no presumption of agency in parent/subsidiary relationship, although an agency relationship could be established on the facts. The court also described the fraud or fa´┐Żade scenario as one well recognised exception to the rule prohibiting the piercing of the corporate veil. ...read more.

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