Business Law Essay

This report considers the significance and implications of the concepts of corporate legal personality, corporate veil and limited liability in the setting of corporate groups. Additionally, there is an attempt to critically explore and evaluate the corporate civil liability of corporate groups, under the circumstances of statutory corporate veil piercing, with specific examination of the legal principles applied by courts to justify such an action to protect creditors.

From the beginning of the judicial history, the lawyers and judges have emphasized about how a corporation is an intangible legal entity alone without body or soul (Arthur and Machen, 1911). The doctrine of separate legal personality basically is about how a corporation and the owners were two different entity (Kelly, Hammer and Hendy, 2014). The Limited Liability Act which replaced by the Joint Stock Companies Act 1856, is where the members are only liable up to the amount that

In R v. Redfern & Dunlop Ltd. (Aircraft Division) , the Court held that where the employees who were not in the decision making level could not be identifiable with the company and therefore were not deemed to be the controlling mind of the company. The question that comes up is that if a person at a lower level commits a crime in the name of the company, the company cannot be held liable for the same. This may pose to be a problem in the sense that the company may make a division between the senior management and the employees to avoid criminal proceedings against them

Woodward, S., Bird, H. & Sievers, S. (2005). Corporations Law in Principle 7th ed. Pyrmont, NSW: Lawbook Co.

This is a New York Court of Appeals decision in 1926 adjudicated by the legendary Justice Cardozo. In this seminal case on ‘piercing the corporate veil’, the Court of Appeals finds in favor of the Defendant, Third Avenue Railway Company. The Court holds that Third Avenue, the parent company of Forty-second Street Company, which operated a rail line upon which the Plaintiff was injured, was not liable for the torts of the subsidiary. Even though the defendant owned all the stock of the subsidiary and controlled its Board of Directors, the degree of domination over the subsidiary was not considered

This doctrine has been seen as a “two- edged sword,” reason being that at a general level while it was seen as a good decision in that by establishing that corporations are separate legal entities, Salomon 's case endowed the company with the entire requisite attributes with which to become the powerhouse of capitalism. At a particular level, however, it was a bad decision. By extending the benefits of incorporation to small private enterprises, Salomon 's case has promoted fraud and the evasion of legal obligations.

The Corporate personhood, a universal legal model, grants corporations genuine rights and responsibilities similar to those of individual citizens. This concept proved useful in American jurisprudence in that it simplified one’s interactions with huge conglomerates. Citing the Fourteenth Amendment of the constitution, the term corporate personhood served to consider corporations similar to individuals. In that vane, corporate entities like individuals could join contracts as a single unit, corporate entities like individuals could be named in civil lawsuits as a single group and corporate entities like individuals could make decisions that would hold the enterprise responsible as a single entity even though the decisions were

The Commerce Clause refers to Article 1, Section 8, Clause 3 of the U.S. Constitution, which gives Congress the power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.”

The fundamental question presented by the case is if Albion C. Cranson, Jr. is a partner with Real Estate Service Bureau and therefore liable for the debts incurred in purchasing typewriters form IBM. Albion C. Cranson, Jr. contended that the Real Estate Service “Bureau was a de facto corporation and that he was not personally liable for its debts “(Warner, et al., 2012, p 693).  Furthermore, it is stated “The fundamental question presented by the appeal is whether an officer of a defectively incorporated association may be subjected to personal liability under the circumstances of this case” (p. 694). The decision was that Cranson was not liable for the debt because “I.B.M. is estopped to deny the corporate existence of the Bureau, we hold

Corporations Legislation 2008, Thomson Lawbook Co., 2008. Annotations by Harris, J. and Annual Review by Baxt, R.

This is not an easy burden to meet. In determining whether or not a third party has met this burden, a court will consider several factors, including: the absence of business records, undercapitalization of the business, failure to observe mandatory formalities, fraudulent representation by shareholders and/or directors, the promotion of fraud or illegal activity, payment of personal obligations by the corporation, commingling of assets, conduct that manipulated or ignored the corporate form, or is otherwise found to be an “alter ego” of the corporate mangers or shareholders. It is not necessary that the third party make a showing of the existence of all those factors in order to support a finding that the corporate veil should be pierced. Once pierced, or lifted, courts can look beyond the independent personality of a corporation and hold individual shareholders, board members, or employees liable for the obligations of the corporation. In deciding whether the burden has been met, courts will weigh two competing interests. The first being fairness, or the desire to reach an equitable outcome, and the second being societies interests in upholding the principle of limited liability.

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 .

Salomon v Salomon and Co. Ltd (1897) AC 22 - when Aron Salomon sold his business to Salomon and Co. Ltd. Company, where he was still the major shareholder and some of his family was also a member. He also received a debenture as part of the payment for a secured term. But when the company has gone into liquidation during the 1890’s some argued that his

There is no clear framework of the rules that would cover the contingencies of a ruling to pierce the corporate veil Idoport Pty Ltd v National Australia Bank Ltd. The corporate Veil usually protects owners and shareholders from being held liable for corporate duties. Yet again a decision made by the court to lift that veil and would place the liability on shareholders, owners, administrators, executives and officers of the company without ownership interest. The purpose of this essay is to conduct an analysis on the concept of lifting the corporate veil and to review the different views on its fairness and equitability to present a better understanding of the notion, the methods used was throughout researching the numerous scholars views on the subject, case law and statutes examples, and the evidence provided by the empirical study of Ramsay & Noakes. When we discuss the lifting the corporate veil the first case that pops out is the case of Salomon V A. Salomon & Co Ltd, since the decisions of applying the corporate veil were first formed as a consequence of this case. The idea covers all of company law and distinguishes that a company is a separate legal entity from its members and directors. Furthermore, spencer (2012); have indicated that one of the core principles that followed the decision in Salomon v Salomon was the wide acceptance one man company’s. However In order to form a

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.