A company is regarded as a distinct legal entity with a separate existence from its membership and management team. Salomon v Salomon & Co Ltd. Salomon 's case is universally recognized as authority for the principle that a corporation is a separate legal entity. The case firmly established that upon incorporation, a new and separate artificial entity comes into existence. Lord Halsbury expressed ‘once a company is legally incorporated it must be treated with its own rights and liabilities appropriate to itself’, In other words, its own personality separate from and independent of the persons who formed it.
This principle may be referred to as the ‘Veil of incorporation’. Contrastingly, in a number of circumstances, the Court will pierce
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A further illustration of fraud in this context is provided by Jones v Lipman, in which Mr Lipman sought to escape specific performance of a contract entered into for the sale of land. In perspective, the evidence in Salomon (S) indicated that although S had overvalued the price of his pre-incorporated business, the overvaluation had not been of a fraudulent character. As Lord Macnaughten remarked “I must say nothing in the evidence to support such an imputation’. In similar cases, where corporate structures have been used as a mask to avoid contractual obligations are seen in case examples such as Re a company and Trustor AB v Smallbone.
One of the key advantages that shareholders earn when business turned into corporations is their ‘limited liability. The case of Lee v Lee air farming can be included into the discussion deducing that an owner can also qualify to be an employee of the same business this denotes limited liability being orchestrated
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Farwell J concluded see Gilford Motor Co Ltd v Horne that: ‘this company was formed as a device, a stratagem, in order to mask the effective carrying on a business of Mr EB Horne’.
Primarily, section 213 of the Insolvency Act 1987 hinders fraud offenses occurring within the corporate veil. Under section 213, if a company’s intention is to defraud creditors or purse other fraudulent activities, then the court on the protection of the party who bear the loss, may place liability for parties involved in fraud contribute to debts, as Lord Lane SCJ declared just that in the case of R v Grantham .
A further illustration which highlights Gooley’s observation of the Salomon principle being a ‘two-edged sword’ is Ord v Belhaven Pubs Ltd, Hobhouse LJ rectified that ‘nothing was being done to avoid contractual obligation, there was no ulterior motive’ as so was in the case of Adam v Cape.
Courts have been known to lift the veil to achieve justice. For instance, in Creasey v Breachwood Motors Ltd the judge lifted the corporate veil in the interests of justice. This exception is very wide and uncertain, depending on the facts of each case by case
Further, I agree with statements made by French CJ that validating provisions are necessary because not all firms understand corporate governance, and that without these provisions, corporations would be vulnerable to simple errors (Weinstock, 39). As such, by declaring Helen’s appointment as not invalid by reason of contravention of the constitution, the court is acting in the best interests of all corporations and society in general. This decision allows businesses to function effectively, notwithstanding innocent or unsubstantial errors in corporate governance. Thus, I agree with the decision made by the High Court.
As previously established, companies are legal entities. As such, they may be criminally responsible for offences requiring mens rea by application of the identification principle. The identification principle, or doctrine, is where the “acts and state of mind” whom represent the “controlling mind” of the company will be imputed to the company itself (R v Lennards Carrying Co and Asiatic Petroleum (1915); R v Bolton Engineering Co v Graham (1957); (R v Andrews Weatherfoil and others (1972)). These cases were prosecuted under the common law.
In Palgo Holdings v Gowans , the High Court considered the distinction between a security in the form of a pawn or pledge and a security in the form of a chattel mortgage. The question was whether section 6 of the Pawnbrokers and Second-hand Dealers Act 1996 (NSW) (‘the 1996 Pawnbrokers Act’) extended to a business that structured its loan agreements as chattel mortgages. In a four to one majority (Kirby J dissenting) the High Court found that chattel mortgages fell outside the ambit of section 6 of the 1996 Pawnbrokers Act. However, beyond the apparent simplicity of this decision, the reasoning of the majority raises a number of questions. Was it a “turning back to literalism” as Kirby J suggested, or was it simply a case where the court declares that parliament has missed its target?
Andrews N, Strangers to Justice No Longer: The Reversal of the Privity Rule under the Contracts (Rights of Third Parties) Act 1999 (2001) 60 The Cambridge Law Journal 353
The doctrine of separate legal personality is central to corporate law and the functioning of companies in the modern world. This doctrine allows for a company, separate from its shareholders and members, to own its own property, have its own rights and responsibilities, and sue and be sued as its own entity. This means that the rights enjoyed by the company are not necessarily enjoyed by its members, and that members of a company are not necessarily liable for the actions of the company. In the recent case Prest v Petrodel, the doctrine of separate legal personality and the instances in which a court may pierce the corporate veil were discussed. Piercing the corporate veil refers to putting aside the separate personality of the company to hold a person who owns and controls a company as responsible for the actions of the company as if it were their own. In the case of Prest this concept is discussed in detail, to reflect the instances in which courts have pierced the corporate veil, and the extent of applicability of this doctrine. As reflected in Prest, the separate legal personality doctrine is a strong doctrine in corporate law that is only pierced in exceptional circumstances. However, it is also clear that the principle of piercing the corporate veil is an important one, as it allows for the court to hold responsible those in control of a company in instances where it is necessary to achieve an equitable and logi...
“…separate legal entity possessed of separate legal rights and liabilities so that the rights of one company in a group cannot be exercised by another company in that group …”
If English law decided to abolish the doctrine of consideration it would rely on alternative methods such as promissory estoppel to replace the role of consideration in filtering out non-contractual agreements. The outcome of using alternative methods rather than consideration would impact on case precedency and it would change the formation of contracts as consideration is a key element in forming a contract. However since there has been legitimacy and applicability issues raised regarding the doctrine of consideration, it seems necessary to look into the possible abolishment of consideration and finding an alternative method to fill its role in contract law. This alternative method could be promissory estoppel if it wasn’t limited to a defence
A registered company, as an artificial person is separate from its members and exists only by virtue of the Companies Act under which it is incorporated. When a business is incorporated, it becomes a separate legal entity and, therefore, can be sued and sue without affecting the shareholders personal assets. This was established in “Salomon v A Salomon Co.Ltd”. Separate legal personality is known as the veil of Incorporation. This protects the shareholder and places the responsibility of the company onto the directors. These duties are outlined in the Companies act 2014.
Hird and Blair, ‘Minding your own business – Williams v Roffey revisited: Consideration reconsidered’ [1996] JBL 254
Of Lords held that Salomon & Co Ltd. was not a "sham". As the debts of
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
In Krell v. Henry {1903} a plea of frustration succeeded because the court held that the common purpose for which the contact was entered into, could no longer be carried out. But in the same year for similar set of facts, the Court of Appeal decided in Herne Bay v. Hutton [1903] that the contract had not been frustrated because the "common formation of the contract" had not changed. It clearly was a policy decision which shows the reluctance of the courts to provide an escape route for a party for whom the contract ha...
The case of R v Hughes will be used throughout this essay to supplement ...
In the case of Atwal v Rochester , the High Court has placed it firmly back on the agenda for sole traders, and those contracting with them. This case is a county court case. However, a point was raised which appears not to have been considered before, Her Honour Judge Kirkham ordered that the case be transferred to the High Court for the sole purpose of giving judgment. After the judgment was given, it was transferred back to the county court for all other purposes. As will be discussed, the two issues in this case were whether it is a personal contract and whether the contract was frustrated or repudiated.
The courts of England and Wales acknowledge that the above must be something of value, in order to amount to consideration. A valuable consideration in the perspective of the English La...