The Principle of Separate Corporate Personality

2932 WordsMay 10, 201312 Pages
The Principle of Separate Corporate Personality The principle of separate corporate personality has been firmly established in the common law since the decision in the case of Salomon v Salomon & Co Ltd, whereby a corporation has a separate legal personality, rights and obligations totally distinct from those of its shareholders. Legislation and courts nevertheless sometimes "pierce the corporate veil" so as to hold the shareholders personally liable for the liabilities of the corporation. Courts may also "lift the corporate veil", in the conflict of laws in order to determine who actually controls the corporation, and thus to ascertain the corporation 's true contacts, and closest and most real connection. Throughout the course of…show more content…
We will now give examples of company law cases and the circumstances under which the veil of incorporation can be lifted by the courts. In national emergency cases, in times of war or other emergency where economic sanctions may be imposed, the courts may have to lift the corporate veil to reveal the nationality of a company. This was done in Daimler Co Ltd v Continental Tyre & Rubber Co (Great Britain) Ltd. where shares in an English company were held by German nationals, who were treated as an enemy concern in the First World War. So, the judicial lifting of the corporate veil can happen in times of national emergency, however, it is dependent upon the state of hostility between the UK and some other nation. The courts are prepared to pierce the corporate veil to combat fraud. They will not allow the Salomon principle to be used as an engine of fraud. For example, in the case of Gilford Motor Co Ltd vs. Horne an employee had entered into an agreement not to compete with his former employer after ceasing employment. In order to try to avoid his restriction the employee set up a company and acted through that. The court held that this maneuver would not be tolerated, the veil would be lifted and an injunction would be issued against the company to visit the coursework and redistribute it. The court has on occasions lifted the veil of

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