Essay on "Lifting the Corporate Veil Limited Liability"

Essay 13 pages (4667 words) Sources: 10

[EXCERPT] . . . .

Lifting the Corporate Veil

Limited liability and separate personality

The principles using Salomon v Salomon .Co

Exceptions about Lifting the in Different Countries

Lifting the Veil in UK

The Element of Lifting Corporate Veil

Some doctrines about Corporate Veil

Agency

Fraud

Parent - Subsidiaries Companies

Why the Courts have been Reluctant?

Reasons

Advantages for Lifting the Veil

Protection for Creditors

Responsibility for Debts

Fair for Other Members in Company.

163.3 Disadvantages for Lifting the Veil

Can not distinguish the separate legal personality of company and shareholder ' liability for company

Some illegal acts for Personal profits to injure the interests of the company

Conclusion

Bibliography

Lifting the Corporate Veil

Introduction

Corporate veil lifting depicts a lawful judgment or right to treatment as a right or liability of its share-holders or the (BOD) Board of Directors. We can say that a separate legal entity depicts a corporation possessing a liability to own its debts (as incurred) and at the same time, corporation is a sole beneficiary of owed credit. Countries having Common law generally support the rule of separate personality, but countries may lift the corporate veil depending upon the situation.

1.1. Limited liability and separate personality

There are some basic legal characteristics pertaining to a company or corporation which can be categorized into following five areas: legal personality; limited liability; the transfer of shares; delegated or transferred management and ownership of investor. It is generally said that the above-mentioned characteristics are very helpful in running business in more efficient and effective manner through different corporate vehicles.

The only way a limited liability is available to entrepreneur is company incorporation. Without incorporating a company, limited liability is not available. During recent past, it can be more extensive, it is now possible through the formation of limited liability partnership or limited partnership available. The idea of limited liability is that when a company is liquidated, its members (or shareholders) are not required to contribute, but they must pay their shares in the company's entire assets. In other words, the liability of members is limited. The capital can be mobilized more effectively through limited liability. Limited liability is also an effective means of raising funds for the company. With limited liability, companies have a choice of either loans or limited liability capital market development is also facilitated by limited liability.

Separate personality is another concept. It is observed that limited liability and separate personality are different concepts. Considering the case of unlimited company, separate personality can be present but without limited liability. Its in the constitution that law can lay down limited liability without separate personality. But this is possible only in limited partnership. Generally it has been observed that operation of limited liability can be made very smooth by the use of separate personality. Macaura v Northern Assurance Co Ltd. [1925] a.C. 619 Lee v Lee's Air Farming Ltd. [1961] AC 12

Separate personality can be defined as a business setting in which assets and liabilities of the company does not belong to its members but to the company itself. In case of liquidation, the creditors do not have the right to sue ex-members for the remaining or unpaid liabilities.

In case of a going-concern, this regulation protects the members from being liable to creditors. Members of a going concern do not have dependence on limited liability. Courts have the right of lifting the corporate veil which will result in member being liable. Limited liability is only applicable when a company in the process of wrapping-up. If an unlimited company is declared bankrupt members are to share the funds to pay company's debt. But this does not mean that the creditor can directly sue the members. However, if the company is a limited liability company, members of the holders of fully paid shares are in no way liable to contribute to the company debts.

1.2. The principles using Salomon v Salomon .Co

Salomon v Salomon & Co Ltd. [1897] AC 22 at 51 (Lord Macnaghten)

Company is legally entirely different from the user; and it is possible that the establishment of company is exactly the similar to the one before; the same person is the manager and getting the same profit. Companies do not nominate people, in law, the trustee or their agents.

1.3. Exceptions about Lifting the in Different Countries

In order to lift the corporate veil, a number of theories were developed by the German company law in 1920s. These theories were based on the principle that "domination" of parent company on subsidiary is a must for lifting the corporate veils. Today, shareholders of a company can be held responsible for interference and sabotage cases. A minimum of equitable finds are entitled for a corporation. If shareholders took away these funds may claim compensation, even in bankruptcy proceedings.

In UK company law, the lifting of corporate veil is very rare. For the establishment of theory of economic reality, there were a number of attempts by the Court of Appeal in late 20th century. On the other hand, House of Lords adopted an orthodox approach for lifting the corporate veil. Most prominently, in a recent case of Adams v Cape Industries Limited strict reading, is the real "piercing the veil" might occur, if there is some fraud in establishment of company, or it is established to avoid some obligations. A veil is often overlooked in the process of statutory interpretation, and as a matter of tort law for opening up the power of direct taxes, it can be apparent to take care of the management of accident victim's owned subsidiary. Also a significant statement, the judiciary still in a broader lifting of the "justice" of the interest would support the veil.

In the U.S. company law, corporate veil piercing is one of the most litigation issues. Although the Court held the directors or shareholders do not want positive action, in law bear responsibility for the company, if the company clearly does not match, or just hold the company should bear the liability Church unfair plaintiff. In most areas, there is no bright-line rules and governance based on common-law precedent. In most cases, they break, the three basic pin - the "misconduct" and "proximate cause" "the unity of interests and ownership." However, no theoretical explanation of a real-world practice, the court can be directly applied to their cases. Therefore, the Court's struggle with the Prong argument and analysis resulted in all the given factors. This can be called as "totality of circumstances."

2.0. Lifting the Veil in UK

Although the secondary literature refers to the "Cancel" or "revealing" the veil, the judicial support views that the judge, is subject to the exception to the rule of Solomon which is thin on the ground in different ways. Mr. Lord Denning outlined the "single economic unit" theory - DHN Food Distributors Tuen TV Tower - which, as an economic unit of the court to review the overall business operations, rather than the strict legal form. However, this was largely negative, and has been ruling at a later caution.

In case of Woolfson v Strathclyde, it was confined to its facts in the (DHN) problem has been the decision of whether the plaintiff has a subsidiary by the House of Lords, the former parent company of the premises has conducted its business, although it can get next command, under the rule of compulsory purchase of Solomon compensation for loss of business, which is said to have lost their parents and not the business of subsidiaries).

Similarly, in case of Bank of Tokyo v Karoon, Lord Goff, concluded that the corporate structure of this legal concept is completely different economic reality.

"Single-economic unit" theory is also discarded by the CA in Adams v Cape case, Slade LJ held there, who has been the case in the Solomon case, to avoid domination, they just do not know about what should be done? The view was expressed that the quality of first instance HHJ Southwell Craig v Breachwood, English Law "must" recognize that the corporate veil can be lifted is considered by Hobhouse LJ in the Ordinance heresy v Belhaven principles described in these concerns.

In Jones v Lipman's case trials, they used company as a "facade" each (Bertrand Russell judges) to defraud the defendant and the Guildford Motor Co. Ltd. v. Horn, who is for the establishment of an injunction were granted to commercial transactions creditor cases. It is only a tool to allow him to circumvent the restrictions on trade convention which seems to be a constant creating a "fraud" exception to the independent business personality. In the same way, in Gencor v Dalby, it was tentatively suggested that the cancelled corporate veil was considered to be the "alter ego" of the defendant. In fact, as the Cook (1997) points out extrajudicial executions, it is because, although it, not the company's independent status, equity intervention.

2.1. The Element of Lifting Corporate Veil

In 1844, Incorporation was introduced by registration and the principle of limited liability pursued… READ MORE

How to Reference "Lifting the Corporate Veil Limited Liability" Essay in a Bibliography

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