The Doctrine Of Separate Personality And Lifting The Veil Of Incorporation

This essay will explain the concepts of separate personality and limited liability and their significance in company law. The principle of separate personality is defined in the Companies Act 2006(CA) ; “subscribers to the memorandum, together with such other persons as may from time to time become members of the company are a body corporate by the name contained in memorandum.” This essentially means that a company is a separate legal personality to its members and therefore can itself be sued and enter into contracts. This theory was birthed into company law through the case of Salomon v Salomon and Co LTD 1872. This case involved a company entering liquidation and the unsecured creditors not being able to claim assets to compensate them. The issue in this case was whether Mr Salomon owed the money or the company did. In the end, the House of Lords held that the company was not an agent of Mr Salomon and so the debts were that of the company thus creating the “corporate Veil” .

2 This is an OPEN book examination. You can only use your prescribed text book and the Corporations Act 2001. No other materials are allowed.

The thesis deals with the above concepts and discusses how the Companies Act 71 of 2008 (the Act) modified the law, particularly, by extending the legal capacity of a company and extinguishing or modifying the above rules which had previously restricted a company's ability

This paper describes the impact of the decision made in the case of Tesco Stores Ltd v Brent LBC on the law and its effects on the corporate world, and the comparison between the doctrine of vicarious liability that it outlines and the doctrine of identification that was used earlier to determine the liability of corporations in cooperate crime.

Woodward, S., Bird, H. & Sievers, S. (2005). Corporations Law in Principle 7th ed. Pyrmont, NSW: Lawbook Co.

Here, the corporation want the law to acknowledge them as an individual, they want to have legal status and equal protections. Therefore, the corporations should have the same rights as natural persons. If there are any circumstances, they can sued and be sued by other parties in court. The corporations should have the equal protection and justice from the court which also apply to other people. As they also pay their taxes and even have their rules and regulation that should be followed like other people. If they violate the rules they can get penalty and be sued according to the law.

Corporations Legislation 2008, Thomson Lawbook Co., 2008. Annotations by Harris, J. and Annual Review by Baxt, R.

Choosing a Corporation/Company Structure - the business structure of a company/ corporation is highly recommended, it has the flexibility to gain more capital, or credit capability and assets used as security. Based on the Corporation Act 2001 (Cth) AC 22, a corporation is another legal entity with their own legal rights, duties and responsibilities separate to the individual or owner of the company (Harris, Hargovan & Adams, 2013, pp 229). The risk and consequences are one of the principal considerations of choosing a company structure (Harris, Hargovan & Adams, pp 50). Based on the “Corporate Veil” Liability is owned by a separate legal entity and not to the extent of the owner, for instance, the debt of the company is not a personal liability, but the company. This is further explained in the case below.

Although doctrine of separate legal entity has the greatest importance in company law, it contains weaknesses that could be arguable. Professor Kahn-Freund described the doctrine as “calamitous” because it arise many issues, such as “How is it possible to check the one-man company and other abuse of company law?” Separate legal entity is inadequate for complex problems .

To a great extent, the theory of personhood rests on a breaking down and clarification of what it is to be an agent. Human rights, as understood by Griffin, are protections of our status as functional human agents, grounded in our interests in autonomy, liberty and the minimum material provision requisite to make the exercise of our agency real and possible. Griffin acknowledges that the human interests in autonomy and liberty are not the only important interests that exist, but it is the protection of these particular interests that generate a human right . In this sense, autonomy and liberty are the special, determinant grounding elements identified by Griffin as the interests required for normative agency.

The concept of a company being a separate legal entity is the most striking illustration in separating the company from its owners. A paramount principle of corporate law is that no shareholder or member of a company is made liable for the obligations incurred by such incorporations A company is different from its members in the eyes of law. In continuations to this the opposite also holds true in the sense that neither can the company be held liable for the acts of its members. It is a fundamental distinction that a company is distinct from its members.

There is no clear framework of the rules that would cover the contingencies of a ruling to pierce the corporate veil Idoport Pty Ltd v National Australia Bank Ltd. The corporate Veil usually protects owners and shareholders from being held liable for corporate duties. Yet again a decision made by the court to lift that veil and would place the liability on shareholders, owners, administrators, executives and officers of the company without ownership interest. The purpose of this essay is to conduct an analysis on the concept of lifting the corporate veil and to review the different views on its fairness and equitability to present a better understanding of the notion, the methods used was throughout researching the numerous scholars views on the subject, case law and statutes examples, and the evidence provided by the empirical study of Ramsay & Noakes. When we discuss the lifting the corporate veil the first case that pops out is the case of Salomon V A. Salomon & Co Ltd, since the decisions of applying the corporate veil were first formed as a consequence of this case. The idea covers all of company law and distinguishes that a company is a separate legal entity from its members and directors. Furthermore, spencer (2012); have indicated that one of the core principles that followed the decision in Salomon v Salomon was the wide acceptance one man company’s. However In order to form a

(63)” Limited liability is another thing that is not inherently bad. If shareholders were completely held responsible for the debts of a corporation, then nobody would want to invest in any company. Limited liability helps boost the economy by encouraging people to invest money in companies which then make products for consumers to buy. Limited liability can also be used in a bad way such as when the owners of BP were not able to be held accountable for the environmental damage and the loss of 11 lives because they ignored safety regulations to make a bigger profit. The BP oil spill is another example of corporation privatizing profits and socializing cost. BP cut costs by getting around safety regulations on their oil rig. They Saved money and increased their profit by doing this but all of that profit stayed among the BP shareholders, however when the oil rig exploded the shareholders were not forced to pay for the damages and reparations. The public was forced to pay the cost of cleaning up the gulf. The shareholders made a profit by cutting corners, but when it finally caught up with them and disaster struck, they passed the cost of it on to everyone

The decision of Salomon v. Salomon which brought about the doctrine of separate legal personality is one which has evolved over time. Over a century and still counting, the principle illustrated in Salomon, courts have are still reluctant in placing limitations on corporate personality and rejecting other approaches which pose as a greater challenge to the doctrine . From time immemorial, judicial history, lawyers and judges have reiterated that the doctrine of corporation is an intangible legal entity, without the body and soul. In Athanasian terms, the orthodox doctrine of corporation as a legal person, separate and distinct from the personality of the members who compose it, has been defined and propagated .

Corporation origin from the Latin word Corpus which means body. It is formed by a group of people and has separate rights and liability from those individual. In any means, corporation exists independently from its owner and this principle is called the doctrine of separate personality. Doctrine of separate personality is the basic and fundamental principle in a Company Law. This principle outline the legal relationship between company and its members. Company’s assets belong to the company not the shareholders as assets are the equity for creditors. Company must use up all its assets to pay off the creditors if it became insolvent. The same applies to the corporation’s debts. For limited liabilities company, the shareholder liability is limited which means that the shareholder is restricted to the number of shares they paid and not personally liable for the corporation’s debts. If the company does not have enough equity to pay off debts, the creditors cannot come after the shareholders. However, limited liability company can be very powerful when in hands who do fraud and on defeating creditors’ claims. Courts then can ignore the doctrine for exception cases and lifting the corporate veil. Lifting the corporate veil is a situation where courts put aside limited liability and hold a corporation’s shareholders or directors personally liable for the corporation’s debts.