corporate veil

Topics: Corporation, Legal entities, Corporations law Pages: 4 (2460 words) Published: October 27, 2014

In the main, traders and business people are risk averse; as a result, in whatever they do they always fight for risk minimization. The aforementioned factor –i.e. of minimizing risk- contributes, to a significant extent, for the decisions by traders and businessmen to forming companies. Consequently, traders and businessmen will see as the main attraction of forming a company the advantage of avoiding liability for business debts. This advantage arises from the concepts of separate legal person and limited liability which are embodied in the doctrine of corporate veil under company law. However, some businessmen, law scholars and the public at large argue that corporate veil is nothing but a fallacy meant to dupe business people into a false sense of security. The following presentation seeks to discuss this assertion, bringing out the significance and exceptions of the concept of corporate veil. The doctrine of corporate veil emanate from the ruling of the case of Salomon vs Salomon 1897, whose facts are as follows: Aron Salomon was a successful leather merchant who specialized in manufacturing leather boots. For many years he ran his business as a sole proprietor. Salomon decided to incorporate his business as a Limited company, Salomon & Co. Ltd. Mr. Salomon himself was a managing director who owned 20,001 of the company's 20,007 shares - the remaining six were shared individually between the other six shareholders (wife, daughter and four sons). Mr. Salomon sold his business to the new corporation for almost £39,000, of which £10,000 was a debt to him. He was thus simultaneously the company's principal shareholder and its principal creditor. The company almost immediately ran into difficulties and only a year later the then holder of debentures appointed a receiver and company went into liquidation. Its assets were sufficient to discharge the debentures but nothing was left for the unsecured creditors. The liquidator argued that the debentures used...

Bibliography: GOULDING SIMON, COMPANY LAW SECOND EDITION 1999
MAVHUNGA. M. (UZ) CORPORATE LAW AND BUSINESS ADMINISTRATION STUDY PACK
NCUBE LISON (NUST), COMMERCIAL LAW 1204 MODULE, 2014
COMPANIES ACT CHAPTER 24:03
www.lawteacher.netm.businessdictionary.com
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