Corporate Ethics : Corporate Veil And Limited Liability

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LAW302 ESSAY I. Introduction In recent times, there has been an increased incidence among large scale business organizations to structure their operations through the form of corporate groups, with many domestic and international subsidiaries, wholly owned or otherwise, with the corporate veil ensuring that each of these enjoy separate corporate legal personality and limited liability. The existence of these ‘corporate groups’, with subsidiary companies being heavily controlled by their parent companies, have necessitated interpretations and applications of existing corporate legal principles to this novel context, even in case of the basic tenets of corporate law. The circumstances associated with corporate veil piercing, through detailed…show more content…
However, this classical model and related literature has an inherent assumption that the ultimate owners of the company are actual persons and fails to consider and contemplate the possibility of owners being other corporate structures or provide a brief consideration to this new business form . While these principles are directed at reducing the risk of the actual persons engaging in the business, the emergence of corporate groups, with the holding company as the owner, necessarily means that the holding company, as a shareholder, enjoys this corporate separation and limited liability to reduce its risk in engaging in the subsidiary’s business. The application of the classical corporate law model into a group enterprise context means that the parent and subsidiary are separate legal personalities through the veil of corporation, with assets and liabilities of their own which are unshared. Accordingly, only the assets and capital of the subsidiary can be used to fulfil its obligations and the holding company, as shareholder, is liable only to the extent of the unpaid amounts on their shares. Thus, the holding company enjoys limited liability as a shareholder and can protect its assets from being used to meet the liabilities of the subsidiary, while being the ultimate controller of the subsidiary in terms of directly influencing its actions, conduct and decision
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