Law Of Business Organisations Essay

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LAW302 – Law of Business Organisations Essay Jade Chapman Student Number: 4667426 Introduction Corporate legal identity is one of today’s most common issues when dealing with companies. The extent to which the courts will allow the protection of a company’s directors and member under the principal of a separate legal entity varies by case. The term lifting or piercing the corporate veil implies that the limited liability protection of the company’s members and directors is lifted, to the extent that the courts disregard the actions of a company’s shareholders and believe that the actions of the company are actually those of the shareholder. The courts may also lift the corporate veil when requested by the shareholders or the company…show more content…
Today, many larger companies have complex corporate structures in order to lower the legal liability risk within their different entities. This occurs when a holding company owns and operates many wholly owned subsidiaries. Each of the subsidiary companies are considered a separate legal person, with its own board of directors responsible for managing the operations of the company. As long as the members of each company, whether a subsidiary or holding company act in the best interest of the company there is no reason why corporations cannot act in this way. However, due to the number of corporations that operate this way many complications arose, if the subsidiary company fails the holding company will only face limited liability and their debt will only be limited to the amount of any unpaid shares held by the holding company. This then made the courts consider that the debts of a holding company are those of the subsidiary and the holding company may be liable for the debts of the subsidiary, and therefore it is necessary to lift the corporate veil. Lifting the Corporate Veil The circumstances as to when the courts will consider lifting the corporate veil are quite vague and it is granted based on facts and circumstances of each individual case. When the courts seek to lift the corporate it essentially takes away the separate legal entity doctrine which was first represented in Salomon v
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