“In spite of the obvious economic connection between companies within the same group, English company law has steadfastly maintained its policy of treating such companies as distinct legal entities.”
Explain this statement. Consider the need for reform.
Contents
Introduction 3
Salomon v Salomon 4
Lifting the veil of incorporation 5
Fraud 5
Façade or a sham 5
Groups of Companies 7
Adams & Others v Cape Industries plc 10
Is there a need for reform? 12
Conclusion 14
Bibliography 16
Books: 16
Journals: 16
Cases: 17
Websites: 17
Bill: 18
Introduction
In order to explain the statement this essay will explore the background to treating companies as distinct legal entities; review certain cases trying to pierce
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Once the company is legally incorporated it must be treated like any other independent person with rights and liabilities of its own.
Lifting the veil of incorporation
There are exceptions to the principle in Salomon’s case, where the veil is lifted, or pierced, and the law disregards the corporate entity and pays regard instead to the economic realities behind the disguise. Exceptions can be classified into those expressly provided by statute (such as in section 214 of the Insolvency Act 1986 which makes directors liable for wrongful trading10) and those under judicial interpretation11. To ‘lift the veil of incorporation’ simply means to ignore or set aside the separate legal personality of a company.
Creditors have tried to pierce through this concept of a company being a separate legal entity. However Courts are very reluctant to let them do so unless there is evidence of fraud or a sham.
Fraud
The corporate form cannot be used for the purposes of fraud, or as a device to evade a contractual or other legal obligation. Where there is fraud or a deliberate breach of trust the courts show a willingness to set aside the corporate form. They pierce the corporate veil in order to achieve justice. Standard Chartered Bank v Pakistan National Shipping Corporation12 established that reliance upon fraudulent representation was in
It seems understandable that a business should exist as a separate legal personality as it would be impossible for an individual’s motives and goals to be perfectly in line with that of the company as is demonstrated above in Salomon. Following this theory the idea that the rights and duties of a company are not that of its members and shareholders as demonstrated in the case of Lee v Lee Air Farming .
Welcome to TOP Education and TLAW201 COMPANY LAW. This document provides you with information relevant to successful completion of this unit; including schedule of lecture topics, prescribed texts, assessment policies, assessment tasks, examinations, academic and administrative contacts and online learning support facilities.
“Corporations are said to be “creatures of statute;” they exist because state laws allow human beings to organize themselves into entities that separate ownership and management functions as the outline above delineates. The business rule is there a presumption that making a business decision, the offices act in good faith with the belief that their actions is what is best for the company (Halbert/Ingulli, 2012 pg. 31).”
This paper will seek to identify any breaches of Common Law, Equitable principles, sections 180-184 of the Corporations Act 2001 (Cth), and any other breaches of the aforementioned Act specifically dealing with Takeovers, whilst describing any appropriate remedies that may be available for said breaches.
Historically, commercial companies developed as a means of allowing a number of people to pool their resources (in the form of capital or management skills) to undertake an enterprise too large for a single individual. Creating a separate legal person to hold and incur the rights and obligations of the enterprise simplified dealings between the enterprise and those with whom it conducted business.
This made the corporation a separate legal person acting in its own rights under the law, this
Choosing a Corporation/Company Structure - the business structure of a company/ corporation is highly recommended, it has the flexibility to gain more capital, or credit capability and assets used as security. Based on the Corporation Act 2001 (Cth) AC 22, a corporation is another legal entity with their own legal rights, duties and responsibilities separate to the individual or owner of the company (Harris, Hargovan & Adams, 2013, pp 229). The risk and consequences are one of the principal considerations of choosing a company structure (Harris, Hargovan & Adams, pp 50). Based on the “Corporate Veil” Liability is owned by a separate legal entity and not to the extent of the owner, for instance, the debt of the company is not a personal liability, but the company. This is further explained in the case below.
For the purposes of this assignment the relevant law is the Corporations Act 2001 (Cth) (either as the “Act” of the “CA”). From now on I will refer to it as the Act (Hinchy, McDermott 2008).
Business organizations operate in a variety of legal forms. The common forms are sole proprietorships, partnerships (general partnerships and limited partnerships) and corporations (traditional S and C corporations and limited liability corporations). The form of organizations is generally decided from the beginning of the business based on several factors, such as ease and cost of formation, capital requirements and cost of money, flexibility in managing and decision making, government rules, liabilities, risk and management, and tax considerations. The article titled “Decision Yields Hits and Misses for Plaintiff in Partnership Dissolution Case,” that I will discuss below is about a partnership dispute that lead to several claims, including dissolution claim.
The Doctrine of Separate Personality has been an important aspect in the Company Law for a long time. It had been discussed heavily in the Salomon v Salomon & CO (1987) which was the leading case for this matter (Dine and Koutsias, 2009, p.17). In fact, it may be the most well-known case in the company law. Company law is simply any laws that related to organizations and businesses in the UK. However, the one that established the doctrine of separate personality is not from Salomon case, it simply permitted its application to one-man and private companies (Kelly, Hammer and Hendy, p.356). Under the separate personality is said to be a ‘veil’ that separated between the owners and the business. This veil can actually be pierced whether under a companies legislation or common law. Thus, in this essay there will be discussions about the matter of separate personality and lifting the veil of incorporation with reference of the leading case Salomon v Salomon & CO and other cases that are related.
1. A company has a separate legal personality from the members in the company so in law it has separate rights and liabilities. The company can enter contracts and own property which wouldn 't make the members of the company liable only the company itself.
Firstly before delving into the complex interwoven legalities of Corporations it is imperative to know what a Corporation is and what separates it from another form of business i.e. a partnership, trust or a hybrid of both. The main difference between a
The company owns the assets of a company and it is liable for any debts incurred. This is why this type of business structure appear to be a high-risk business ventures.
For the purposes of this assignment the relevant law is the Corporations Act 2001 (Cth) (either as the “Act” of the “CA”). From now on I will refer to it as the Act (Hinchy, McDermott 2008).
The concept of a company being a separate legal entity is the most striking illustration in separating the company from its owners. A paramount principle of corporate law is that no shareholder or member of a company is made liable for the obligations incurred by such incorporations A company is different from its members in the eyes of law. In continuations to this the opposite also holds true in the sense that neither can the company be held liable for the acts of its members. It is a fundamental distinction that a company is distinct from its members.