For years the Courts, both nationally and internationally, have grappled with the concept of piercing the corporate veil. The doctrine creates much tension as it entails disregarding a principle factor of a company, namely its separate legal personality. Over the years there have been various interpretations of when to apply the doctrine at a common law level. However, s20(9) of the Companies Act 71 of 2008 (‘Companies Act’) appeared to have codified this common law approach, albeit with further instances of uncertainty as to its application and interpretation.
In the subsequent essay I shall be constructing a legal opinion in which I address the common law doctrine of piercing the corporate veil as well as the application and interpretation
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As a result, a company is able to have its own rights and obligations separate from its directors or shareholders. A further effect is that the company is solely responsible for its legal obligations. Therefore, the directors and shareholders are not liable for the debts of the company. However, with liberty comes the propensity for misuse and the benefits which a separate legal personality produces may be subject to abuse. Thus, a mechanism had to be created whereby those behind the company could be revealed so as to expose any guilty …show more content…
Furthermore, it may regarded as the illegitimate use of the concept of juristic personality adversely affects a third party in a way that reasonably should not be countenanced. This is a broad interpretation by the Court and creates a path whereby the doctrine may not only be used as a last resort, but rather at the discretion of the Court in determining whether an unconscionable abuse has occurred. Moreover, it rectifies the common law philosophy that piercing the corporate veil should only be used as a last resort. Thus, s20(9) may be seen as supplemental to the common
This decision was made in good faith and cannot be conspicuously construed to have self-interests veiled in them. Further, the executive directors made an informed decision to refrain from passing this information to the board and they did believe that this would be in the best interests of the company as disclosure would have brought an end to the company’s existence much before the actual downfall. Thus this judgment met all the requisites prescribed under the provisions of Section 180 (2) of the Corporations Act, 2001 (Rawhouser, Cummings and Crane 2015). This case was the first to comprehensively lay down the business judgment defense and apply it to the facts and circumstances of a case. This defense would negate the apparent breach of the duties of the directors as prescribed by the statute and under common
William Evan and Edward Freeman, in their essay “A Stakeholder Theory of the Modern Corporation,” argue that the objective of a company and its managers is not only to maximize profit for its owners and stockholders, but also to balance the benefits received or losses incurred by other stakeholders—employees, suppliers, customers, and the local community, all of whom may be influenced by company decisions. As the owner of MSO, your aim is ostensibly to maximize profits for yourself, but unlike most other indicted CEOs, you have not tried to obtain personal gains at the expense of the stakeholders of your enterprise. Rather, the charges that have been brought against you are for your dealings with another company; in this day and age where investors bemoan the lack of ethics of CEOs who use the power of their position in the boardroom to achieve selfish gains at the expense of their own company and its stakeholders, the charges of insider t...
Source Four This source comes from Hazel Croall (1998) book Crime and Society in Britain chapter fifteen White collar and corporate Crime. Croall (1998) again argues that the major cases such as Enron that have come to light and the publics attention represents only a tip of the iceberg. Critical analysis Conclusion Gary and Slapper have noted that the commercial corporate body has enjoyed significant legal privileges and argue that from the outset corporations have had advantages of various forms of legal protection. Gary and Slapper suggest that to a certain extent civil law was developed to offer support and protection to companies.
Though many ‘people are aware of what corporate crimes are there are still many who do not know’. A corporate or white-collar crime can be described as “a crime committed by any person through the venue of his or her employment that benefits the business”, ‘this can mean that a corporation does an illegal act of indifference to better the corporation’. It is argued that corporate crimes are more harmful to the general public than acts of intention. When it comes to these ‘crimes it can be said that many of the victims that it affects do not realize, that they are being affected and if and when they do know it is argued that they are told that it is due to a misfortunate accident and that there is no one to blame for the Act’. Many criminologists such as Sutherland argued that corporate crime is something
This report gives the brief overview of the concept of corporate governance, its evolution and its significance in the corporate sector. The report highlights various key issues and concerns that are faced by the organizations while effectively implementing and promoting Corporate Governance.
As I was reading this I thought that the veil that the preacher was wearing could represent sin and later on in the story I confirmed my hypothesis. I also think that when he refused to take the veil off he was trying to show people that we as a nation do not care that we have sinned because it is the “thing to do”. We don’t want others to make fun of use for being Christian and we do not want people to think that we are different.
As a consequence of the separate legal entity and limited liability doctrines within the UK’s unitary based system, company law had to develop responses to the ‘agency costs’ that arose. The central response is directors’ duties; these are owed by the directors to the company and operate as a counterbalance to the vast scope of powers given to the board. The benefit of the unitary board system is reflected in the efficiency gains it brings, however the disadvantage is clear, the directors may act to further their own interests to the detriment of the company. It is evident within executive remuneration that directors are placed in a stark conflict of interest position in that they may disproportionately reward themselves. The counterbalance to this concern is S175 Companies Act 2006 (CA 2006) this acts to prevent certain conflicts arising and punishes directors who find themselves in this position. Furthermore, there are specific provisions within the CA 2006 that empower third parties such as shareholders to influence directors’ remuneration.
Salomon v Salomon was and still is a landmark case. By confirming the legitimacy of Mr Salomon's company the House of Lords put forward the concept of separate corporate personality and limited liability. Inextricably linked with this ratio is an acknowledgement of the importance of certainty within the law, thus separate corporate personality becomes a concrete principle to which the law must adhere. Salomon v Salomon is followed in subsequent cases, notably Macaura v Northern Assurance Co.[3] and Lee v Lee's Air Farming Ltd[4]. These cases highlight the reality of the separate corporate identity and take it a step further in stressing the distinction between a company's identity and that of its shareholders.
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
In company law, registered companies are complicated with the concepts of separate legal personality as the courts do not have a definite rule on when to lift the corporate veil. The concept of ‘Separate legal personality’ is created under the Companies Act 1862 and the significance of this concept is being recognized in the Companies Act 2006 nowadays. In order to avoid personal liability, it assures that individuals are sanctioned to incorporate companies to separate their business and personal affairs. The ‘separate legal personality’ principle was further reaffirmed in the courts through the decision of Salomon v Salomon & Co Ltd. , and it sets the rock in which our company law rests which stated that the legal entity distinct from its
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[1], 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 this assignment I will begin by explaining the concept of legal personality and describe the veil of incorporation. I will give examples of when the veil of incorporation can be lifted by the courts and statuary provisions such as s.24 CA 1985 and incorporate the varying views of judges as to when the veil can be lifted.
Solomon, J (2013). Corporate Governance and Accountability. 4th ed. Sussex: John Wiley & Sons Ltd. p.7, p9, p10, p15, p58, p60, p253.
According to Corporation Act 2001 s124(1), it illustrates that ‘’A company has the legal capacity and powers of an individual both in and outside the jurisdiction” . As it were, company as a legal individual must be freely with all its capital contribution shall embrace liability for its legal actions and obligations of the company’s shareholders is limited to its investment to the company. This ‘separate legal entity’ principle was established in the case of Salomon v Salomon & Co Ltd [1987] as company was held to have conducted the business as a legal person and separate from its members. It demonstrated that the debt of company is belonged to the company but not to the shareholders. Shareholders have only right to participate in managing but not in sharing the company property. Besides ,the Macaura v Northern Assurance Co Ltd [1925] demonstrates that the distinction between the shareholders and company assets. It means that even Mr Macaura owned almost all the shares in the company, he had no insurable interest in the company’s asset. The other recent case is the Lee v Lee’s Air Farming Ltd [1961] which illustrates that the distinct legal entities between employee ad director allows Mr.Lee function in dual capacities. It resulted that the corporation can contract with the controlling member of the corporation.
Moreover, the auditors had looked out the attitude or rationalisation of the company to justify the fraudulent action. The top management may behalf on their own interest but not the behalf of shareholders to maintain or raise the stock price of the company. In Cendant case, the CUC’s management allegedly inflated earnings by recording increasing revenue and reducing expense to meet expectation.