Corporate legal personality Flashcards
(17 cards)
History about salomon v salomon
In Salomon, Mr. Salomon had incorporated his boot-making business and sold it to the newly formed company, becoming its principal shareholder and secured creditor. When the company went into liquidation, Mr. Salomon claimed repayment of a debenture he held over the company’s assets, effectively placing him ahead of other unsecured creditors. The House of Lords upheld his claim, confirming that the company was a distinct legal entity and that Salomon was entitled to be treated as a secured creditor, even though he controlled the company. At the time, the court rejected the argument that the company was a mere sham or alter ego of Mr. Salomon, since all the formal requirements for incorporation had been met.
National emergency- what was ruled in the case of Daimer Co Ltd v Continentual Tyre and Rubber Ltd
Courts held that although the company was incorporated in the Uk, It was effectively an enemy and thus does not sue during war time
In times of national emergency, such as war, courts may lift the veil of incorporation to identify the true controllers of a company and assess whether allowing the company to operate would conflict with national interests. A key example is Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd [1916], where the court looked beyond the company’s legal personality to determine the nationality of its controlling members. Although the company was incorporated in the UK, its shareholders and directors were mostly German nationals. During World War I, the House of Lords held that trading with an “enemy” company was illegal, and thus denied enforcement of a debt. This case illustrates how, in exceptional circumstances such as wartime, the corporate veil may be pierced to prevent individuals from using the corporate structure to evade national laws or compromise public security.
what are the documents required to register a company
Memorandum of association- which contains names, signatures, of the subscribers who are forming the company and for companies limited by shares a committment that each subscriber will take at least 1 share
Articles of association - legal document that forms part of a company’s constitution under the Companies Act 2006. They set out the rules for running the company — basically, a company’s internal rulebook.
under the insolvency act 1986 which sections allow for the lifting of the veil?
Section 213 and 214 - a statutory exception
Section 213 -
· Fraudulent trading (s.213 IA 1986): Where directors act with intent to defraud creditors, they face even more severe consequences.
Wrongful trading (s.214 IA 1986): Directors who continue trading when they knew (or ought to have known) there was no reasonable prospect of avoiding insolvency may be ordered to contribute
what are some statute law exceptions leading to the veil of incorporation being lifted that has been implementted by statue
1) A public company must have at least two members. If there is a single member (who is aware he is the only member) for more that six months, he is personally liable for any debts incurred during that period.
2) Groups of companies must produce accounts acknowledging their internal relationship, and profits and losses of different subsidiaries can be offset for taxation purposes.
3) Under the Transfer of Earnings and Protection of Employment
Regulations (1978), if an employee transfers from one company to asister company, their period o employment is held to be continuous.
4) Employees of a company can be liable for the company’s actions in some circumstances:
- A public company must have an s117 certificate. If it operates without one, a director may be personally liable for any debts
incurred.
- A company cheque must bear the name of a company exactly,
otherwise the director who signs is liable if the cheque is not cleared.
If a company is wound up, its director may not carry out similar
business with a similar name for five years. Double glazing
companies are a good example of this; before his legislation,
directors would pay themselves high bonuses and run a company
into the ground, then would buy the assets of the insolvent company
cheaply and set up a virtually identical company with a similar name
to transfer any goodwill.
Under the Company Directors Disqualification Act 1986, a person
who is disqualified from being a director can be personally liable if
they act as a director during their disqualification period.
If directors know a company is close to insolvency
but continue trading, they may be personally liable.
For example, Courts Furniture Ltd recently
continued taking orders and deposits despite the
directors knowing the business was close to
closing.
Which case counteracts the idea of uplifting the veil to prove that the company is a single economic unit
The case of Adams v Cape Industries plc and Another
the courts held that the company is not a single economic unit due to it having subsidiaries therefore they could not claim against the parent company for the suffered injuries
Single Economic entity-what was held in the case of
Woolfson v Strathclyde Regional Council
the House of Lords ruled that Woolfson and its subsidiary were not a single economic unit due to operational practices. Note that since this case was based in
Scotland, different law applied.
Single Economic entity- what was held in the case of DHN Food Distributors Ltd v London Borough of Tower Hamlets
A subsidiary company of DHN owned land which LBTB issued a
compulsory purchase order on. The courts held that DHN was able to
claim compensation because it and its subsidiary were a single economicunit.
Agency relationship hold
what did the courts held in the case of Smith, Stone and Knight Ltd V Bimingham corporation
SSK owned some land, an a subsidiary company operated on this land.
BC issued a compulsory purchase order on this land. Any company
which owned the land would be paid for it, and would reasonably
compensate any owner for the business they ran on the land. Since the
subsidiary company did not own the land, BC claimed they were
entitled to no compensation.
The courts held that the subsidiarycompany was an agent and BC must pay compensation
what case relate to the lifiting of the veil of incorporation in situations of sham or fraud
Gilford Motor Co Ltd v Horne
what was held by the courts in the case of In Gilford Motor Co Ltd v Horne
In Gilford Motor Co Ltd v Horne [1933] Ch 935, the Court of Appeal held that the company set up by Mr. Horne was a sham or cloak used to evade a contractual obligation that was a duty by Mr Horne. The courts held that he was liable for the wrongdoings of selling to gilfords customers, making him pay for the lost profits
what are some common law exceptions of when the veil of incorporation is pierced
In cases of sham or fraud- i.e when individuals use the seperate legal entity to perform fraudalent activities
In an agency relationship - whereby if a subsidiary is acting as an agent for its holding company, it may be bound to liability but it is the principle not agent responsible for the liability
In a single Economic Entity- where the veil can be lifted to prove that a company is a single economic entity. if they are then that is the company reposnsible
In cases of National emergency - i.e. war- you cannot sue in this instant as public interests override private rights
Other grounds e.g.
When companies have been set up for tax evasion purposes, companies may transfer assets between subsidiaries i.e. setting up companies abroad to reduce tax liability, but courts may treat them as a single unit. In cases of divorce if a company was set up before marriage in another country then they may not be held accountable.
what was ruled in the case of Solomon V Solomon
when the company went insolvent creditors tried to sue solomon for his personal debts but it was ruled that the company was a distinct legal person and solomon wasnt personally liable as he is deemed a shareholder. Thus the company has its own legal personality
Which case established/ illustrated the veil of incorporation?
The case of solomon v solomon
If a company is sued and a judgement is granted do the shareholders lose anything?
Yes it may stance that the shareholders only stand to lose the amount each invested
The principle behind the veil of incorporation is known as what?
what is the signifance of it
Limited Liability
The significance of the veil of incorporation is that a shareholder or owner incurs no debt that the business acquires
what is the purpose of incorporating a companyTo seperate an individual from legal liabily of the company.
To seperate an individual from legal liabily of the company. once it incorporates it becomes its own legal person, thus a legal entity, separate and distinct from the people who formed, own or invest in it. It then retains its own rights and responsibilitiessuch as owning property or entering into contracts, and it can sue or be sued only in its own name.
