Incorporation And Corporate Personality Law Company Business Partnership Essay

Published Date: 02 Nov 2017

Introduction

This essay critically analyses the fundamental concept of company law. The high Court has taken a too narrow approach in interpreting sections incorporations and corporate personality. Through of that, the debate will lead in the one of the representative case, which establishes the above concepts. "Salomon v Salomon& company Ltd" is probably the most famous cases in company law. In addition, I will consider the effect of the doctrine laid down in above case. Furthermore, in that essay I will report in the case of Littlewoods Mail Order ltd V Inland Revenue Commissioners and the decision that the Lord Denning that tell that thought that piercing the veil was required. Then, I examine the concept of lifting the corporate veil and the circumstances when the courts could this. The deliberation of this essay it I will give several cases that cover the incorporation but also going behind of the corporate veil.

Main Body

Incorporation and corporate personality

Incorporation is more closely the concept of corporate personality and it introduces in 1844. (Com Law Ben blue).Upon incorporation, a company convert a separate legal entity, dissimilar from its members. By Company Act 2006, a registered of company is definite to be a body corporate. On the registration of a company, the register must provide a certificate that the business is incorporated and so has what known as legal personality. (French, D., Mayson, S. W., &Ryan, C. - 2012). Consequently, it gains right, obligation and duties, which are dissimilar and distinct from those of its members. Members are not liable of the company debts. A company can sue or be sued for legal wrong and the names of executive members need not be impeded. In addition, its existence is maintained through members may die or are removed or replaces. The illustration of the principle can be found in Lee v Lee’s Air Farming, Macaura v Northern Assurance Co, Williams’s v Natural Life Health Foods Ltd. The most famous case that illustrate the process of the concept of corporate personality is Salomon v Salomon & company (1897)

Salomon v Salomon & company (1897)

Mr Salomon was a manufacturer of leather boots as a sole trader. He decides to transfer the business to a newly incorporated company. The other members of the company were his wife and his five children. He set up a company that he held the major shares. These six individuals were the subscribers of the company’s memorandum and took one £1 share each. Payment to Salomon for the business was through issuing him a further 20000 at £1 shares and £10000 in debentures issued by the company and secured by a floating charge against the company’s assets. Salomon appointed managing director. Hence, he was a secured creditor. Unfortunately, the company failed and the company went into liquidation with debt to unsecured creditors. The unsecured creditors claimed the assets but they did receive nothing ahead of Salomon, arguing that he could not by his status as secured creditors. Thereby, the secured creditors have priority over them as the company and Salomon were the one and the same. The House of Lord held that Salomon was not liable to cover the company against creditors’ claims. Salomon was the first case to affirm the principle of separate legal personality and therefore the corporate veil (scribd – the princi). However, the court did not overlook the corporate veil in this case.

Effects

The House of Lords, in Salomon V Salomon & company, discovered the effects of these depictions of corporate personality. The Company’s business is its business that means the debts and other obligations of the company is the company’s business and not the shareholders or directors (Nlii pdf). Lord summers in Gas Lighting Improvement Co ltd v Commissioners of Inland Revenue (1923) [Com law (Mayson French and Ryan on 29th ] Metropolitan Saloon Omnibus Co Ltd v Hawkins (1859) Collins Stewart Ltd v Financial Time Ltd (2005) Cristina v Seear (1985) 124page Lee v Lees Air Farming Ltd. Moreover, the members of a company have no interest in its property. Properties of the company are owed by the company itself and not by the members. Macaura v Northern Assurance Co Ltd, Farrar v Farrars Ltd. Also, the company might be liable in the tort ……. (100 words)

Littlewoods Mail order Ltd v Inland Revenue Commissioners

Littlewoods carry on a big business and had spent money an acquiring a fixed asset for a wholly owned subsidiary. Littlewoods has spent money acquiring fixed assets for wholly owned subsidiary. It claimed that this was a revenue expenditure for the use of the property a wholly owned by another rather than capital to be employed in its trade, but he Court reject the claim...(ALLAZW )) (Dignam, A. J., Goo, S. H., & Hicks, A. - 2011).  140 p. Lord Denning look behind the veil to expose the real facts. (+110 words)

Lifting the corporate veil

Court referred the separate legal character as the "Veil of incorporation". There is an imaginary veil between the company and its members. The statutory and judicial can pierce the corporate veil or overlook the corporate veil to reach the person behindhand the veil or to expose the true from and characters of the afraid company. Pierce corporate veil ‘elegant technique’ by which the courts could develop it so to do justice. (LAW). Moreover, it means to close the eyes in corporate personality of an incorporate company with a view to ascertaining the members hiding behind the facade. When the human, being who attempt to cover their identity after committing fraud or wrong in the justification of the company, uses facade as disguise. It could be difficult to be determined when will the judge lift the veil. (LAW_Essay) Keenan et al say: "The power to do so is a tactic used by the judiciary in a flexible way to counter fraud, sharp practice, oppression and illegality" law-teacher ( <>). The Company Act authorisation the lifting the veil and allows claims to be made against specifies corporate contributors for the debts and obligations of the company. *** Salomon V Salomon &co ltd is exceptional case do not lift the veil of corporate entity to look at economic realities behind the veil (scrd doclitin)

Circumstance where lifting the corporate Veil

The most important circumstance where the corporate might be and has been lifted is when the company was set up for the purpose of committing fraud. In Gilford Motor Company Ltd v Horne, the claimant employed Mr.Horne had contract that he could not solicit the customers of the company. When he was leaving in the company, he formed a company in his wife’s name and solicited the customers of the company. In addition, in Trustor AB v Smallbone it was clear that the main function of incorporation was to commit fraud. (WEB LAW ESSAY). Moreover, when sham group of company, that mean lifted the veil where the parent company and a subsidiary are treat as one body if they carry on the same business. Adams v Cape plc where the English parents of American subsidiary company was sued for asbestos contamination on America. Trustor AB V Small bone (2001). – Ord v Belhaven Pubs Ltd. Furthermore, where the company abuse of legal procedure (Re Bugle Press), company avoiding legal obligations, group of companies filling one account, Plc having one member or no trading certificate , to protection of revenue, company acting as agent or trustee of the shareholders ( F.G. Film Ltd(scridb)

Conclusion

The separate personality of the company can have some unexpected ans sometimes unwelcome effects. The corporate entity principle often now referred to as Salomon principle are applied systematically in most cases and these have gradually built up a picture of its ramifications.

Salomon v Salomon Ltd is a common business manoeuvre. (blue been book)

Looking at the reality of the situation