Corporate Separate Personality

 Corporate personality refers to a person’s rights and obligations they have in a company identified in the Companies Act 2006 which states the effect of registration. The property in a company does not belong to its member but to the company itself. This is illustrated in Macaura v Northern Assurance Company (1925), where Lord Sumner rejected the appeal and stated Macaura was not entitled to claim insurance on the companies’ assets on the basis of not being a shareholder or a secure creditor. His relationship was only one with the company and it was irrelevant he had no ‘legal or equitable’ interest with the assets.

There are many advantages and disadvantages associated with corporate separate personality. One advantage of separate personality is that it could encourage investors to invest in a situation where they may not have before. A disadvantage could be the loss the creditors make or the shareholders would not with good faith towards the creditors money and carry out unwise investments with the creditors money.

In company law the term ‘lifting the corporate veil’ is when you are looking behind the company’s separate personality to make the members of the company liable. This would be an exception to the genera rule that shields the members from liability. They are held liable regardless of the fact that directors are immune from liability that the company faces. This is seen as a major constraint for members as they are only liable to the company according to the guarantee of their shares.

Although Salomans case creates the back bone for corporate separate liability exceptions are looked into to discover the ‘reality’ of the situations which are being disputed. The ‘lifting of the veil’ takes the approach adopted by the courts own accord or by expressly authorised by the statute. Express authority is the agreement between the principal and the agent, be it in writing or communicated orally.

When dealing with corporate separate liability many judicial issues occur. Following the general rule which is represented by the Saloman case is not enough for every situation. Every situation has different aspects which the judiciary has to decide on who loses out.  There is no set statue which can be used as a provision to when the corporate veil should be lifted. Some say it is to allow flexibility when dealing with different situations such as fraud or misuse. A distinct situation in which the veil of incorporation is required is when a company is a mere façade. This is when a company is hiding true facts to avoid contractual obligation they must comply to.  

The Insolvency Act 1986, S 213 is a statute which deals with ‘fraudulent trading’ provision. Another statute which is important is from the Insolvency Act 1986 S 214 which deals with ‘wrongful trading’. This statute looks at why a reasonable director of a company would not be able to see whether the company is a going concern before winding up of the company takes place. An example to show where a company is guilty of these statutes is displayed in Gilford Motors Ltd v Horneand in Jones v Lipman.

Lifting the veil of incorporation is an aspect of company law which has many different decisions a court can lead to. The court try to stay consistent with the Saloman case but may be obliged to lift the veil of incorporation if justice needs to be served.

Corporate separate personality is something which provides an immense advantage to its members as the company has legal existence which means it is responsible for its own debts. The company and its members are seen as separate legal entities which restricts the liability they owe to the company to the shares they subscribed in the memorandum of association. I conclude that the overall effect of corporate separate liability is positive and has a great impact in Company Law. 

Bibliography

Below is a lift of references I used to help compile my essay

• Companies Act 2006 and Insolvency Act 1986, Blackstone’s Statutes on Company Law 2007-2008, Derek French

• I obtained some cases from the following website. The cases have been highlighted throughout the essay.

• Some of the cases I read were from this text; I have applied a footnote next to some of these.

Sealy, L, Worthington, S, Cases and Materials in Company Law, Oxford University Press, [2008]

---