Explain this statement. Consider the need for reform.
Salomon v Salomon 4
Lifting the veil of incorporation 5
Façade or a sham 5
Groups of Companies 7
Adams & Others v Cape Industries plc 10
Is there a need for reform? 12
In order to explain the statement this essay will explore the background to treating companies as distinct legal entities; review certain cases trying to pierce limited liability; discuss the application of these rules to groups of companies; and then consider whether there is a need for reform.
Over a century ago the English Courts established the basic principle of separate corporate personality: “the corporation has a separate existence from the shareholder” per Vaughan Williams J in Salomon v Salomon1. A distinct legal personality can “own and deal with property, sue and be sued in its own name and contract on its own behalf.2”
A company has a dual nature as both an association of its members and a person separate from its members. The company’s property is owned by the company as a separate person, not by the members; the company’s business is conducted by the company as a separate person, not by the members; and it is the company as a separate person that enters into contracts in relation to the company’s business and property3. “The members are not personally entitled to the benefits or liable for the burdens arising, so their rights are restricted to receiving from the company their share of profits and their liabilities to paying the amounts due from them to the company4.”
The acts of the company are not the acts of the shareholder, and so the company’s liabilities do
Bibliography: De Lacy J. The Reform of United Kingdom Company Law London: Cavendish Publishing Limited. 2003. French D Hannigan, B. Company Law. London: LexisNexis Butterworths. 2003. Mayson S., French D., and Ryan C Morse G. Charlesworth & Morse Company Law (16th Ed.) London: Sweet & Maxwell. 1999. Pennington R Pettet B. Company Law (2nd ed.). Essex: Pearson Education Limited Harlow. (2005). Sealy L Lee R.G., Reviews – Liability and Environment: Private and Public Law Aspects of Civil Liability for Environmental Harm in an International Context. (2003) Journal of Environmental Law 15 JEL (427) Samsworth J Ferran E., Company Law: Lifting the Veil. (1999) Payne J., Company Law: Lifting the Corporate Veil Trustor AB v Smallbone  1 W.L.R. 1177 Viho Europe BV v Commission of the European Communities  Case C-73/95 P Hewitt P. Company Law Speech (2002) www.dti.gov.uk/ministers/speeches/hewitt050702.html 10/04/2006 Magaisa A