Separate Corporate Personality

Topics: Corporation, Corporations law, United Kingdom company law Pages: 5 (3356 words) Published: November 2, 2014
Question- Critically discuss the principles of separate corporate personality and limited liability in relation to companies. Introduction- Overview of Separate Corporate Personality and Limited Liability This principle of a separate corporate personality has a long-standing concept which can be found before the landmark case of the Salomon v Salomon Co Ltd, although it typically is related with the decision. As a result, the case has been defined as a decision that demonstrated and clearly outlined the concept of separate corporate personality, that is grounded the notion that the company is at law a different person altogether from the subscribers to the memorandum. This corporate veil is therefore a mechanism which separates a company from its members. It grants limited liability to the companys shareholders, allows the company to acquire profits and suffer losses, enter into contracts and properties as a separate entity. The principle of separate corporate personality is now defined as a unyielding rock that has been concretised in the section 16(2) of Companies Act 2006. Limited liability, as a result of the separate and different corporate personality, has the foundation of the modern corporation and hence the company law. Limited liability is deemed necessary because it promotes commerce and industrial growth. It is still recognised that this distinction between respective legal personalities, rights and the liabilities of a company and those of its shareholders is still as valid today as it was when the House of Lords had decidedin Salomon. However, despite (or perhaps because of) the important, overarching nature of separate corporate personality, a number of exceptions have been developed allowing the corporate veil, in certain situations, to be set aside or pierced. This therefore means that the separate corporate personality is not absolute different to the statutory and the common laws justification which has indeed developed to uplift the veil, with such consequence that the rights or the liabilities or the activities of its company are treated as the rights or the liabilities or the activities of its shareholders. Quite simply, the principle of separate corporate personality is not in each and every case desirable and the courts have therefore been presented with the need to restrict this overarching concept, in order to prevent and avoid it being abused by a third party. When Can Separate Legal Personality be Set Aside Although this attention to the corporate veil may initially appear to have a powerful and necessary mechanism for overriding limited liability when justifiable, the courts approach to the lifting of the veil has been criticised on the grounds that it is unpredictably applied. On the other hand it has been argued that both the existence and lifting of the corporate veil is rooted in policy considerations which necessarily sacrifices predictability in the pursuance of justice. This is however not helpful for companies that wish to know with certainty whether particular activities or corporate structures will attract the attention of the courts. Despite the long-standing and important nature of separate corporate personality, litigants have in many situations sought to challenge the limited liability of company members. Such claims are most commonly applied to situations and conditions in which a company is used to sham or as a faade to obscure the facts, allowing its members to avoid personal liability. The courts have been careful however to protect this concept of a separate corporate personality hence this veil not being easily set aside save in cases which turn on the wording of particular statutes or contracts, the court is not to be free to disregard the principle ofSalomon that has merely considered that justice is so requires. Whats clear is that this area of the law remains uncertain and hence companies must be careful when conducting their affairs should...

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Hashem v Shayif and Another 2008 EWHC 2380 (Fam). D Lightman E Hargreaves, Petrodel Resources Ltd v Prest Where are we now2013 19 TT 9, 879. PAGE MERGEFORMAT 1 Y, dXiJ(x(
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