Separate Corporate Personality Research Articles

The English Judicial Trends in Lifting the Corporate Veil

The “separate legal personality” and “limited liability” are two main and fundamental principles of corporate law. The concept of a separate legal personality of the company originated from the case Salomon v Salomon & Co Ltd. The landmark case decided that when a company is registered, it attains a separate legal identity. A corporate veil is a concept that recognizes the separate corporate personality of the company from the shareholders‟ personalities. In many circumstances, it happens that the corporate personality of the company commits fraud or any other illegal acts. It becomes impossible to believe that an artificial personality like a company commits any illegal act or fraud. In such cases, for the identification of the original wrongdoer, the veil of the corporation is pierced which is also called lifting the corporate veil. To highlight the English Courts’ trends in lifting the corporate veil, this article unearths the canons of English courts’ judgments to pinpoint the inconsistencies in their decisions. The paper inspects the exceptions to the Saloman rule that have been focused on and meticulously analysed in this research paper to highlight the evolution of these recognised exceptions including “Single Economic Entity, Fraud, and Facade, Sake of justice, and Agency.”

Role of Corporate Finance Law in Corporations

This paper has focused on the role of corporate finance law in corporations. Corporations, in Pakistan has been governed by the Companies Act, 2017, aims to maximize the profit by minimizing the risk, possesses a separate legal personality having rights and duties towards the outside world. As the word corpus means body; Companies enjoys separate legal personality from its shareholder, members and directors. British East India Company was the first business corporation that have earned profit for its members. A company is formed by due process of law and not otherwise. Company if is created by limited number of shareholders i.e two to fifty it is a private company and in other case it is a public company. A public company formulated by due process of law possesses separate corporate personality, the liability of its members is limited and also has many other distinct characteristics.

Role of Corporate Finance Law in Corporations

This paper has focused on the role of corporate finance law in corporations. Corporations, in Pakistan has been governed by the Companies Act, 2017, aims to maximize the profit by minimizing the risk, possesses a separate legal personality having rights and duties towards the outside world. As the word corpus means body; Companies enjoys separate legal personality from its shareholder, members and directors. British East India Company was the first business corporation that have earned profit for its members. A company is formed by due process of law and not otherwise. Company if is created by limited number of shareholders i.e. two to fifty it is a private company and in other case it is a public company. A public company formulated by due process of law possesses separate corporate personality, the liability of its members is limited and also has many other distinct characteristics. Corporate Finance Law is legal aspect of financial management of a public corporation and focuses to manage the finance of a company in legal ways. It governs the decision making process in the company and provide a six step process of financial decision making, it helps to reduce agency cost and transaction cost by tackling agency relations between different limbs of the company i.e. shareholders, managers and third party. By all these means it objects to achieve the basic aim of a company i.e. to earn profit and minimize the risk.

Essentials of a Valid Contract: A Comparative Study of Islamic Law and the Contract Act, 1872

Islamic Law and Pakistani Law have identical basic ingredients to conclude the contract. This term paper will explore the comparison of the ingredients of contract in Islamic Law and the essential requirements of contract in the Contract Act, 1872. The concept of Sighah is identical to the concept of agreement but major difference is the free consent. Sighah includes free consent of the parties but in the Contract Act, 1872 the free consent is treated as an independent ingredient of contract. Contracting parties is the other ingredient in Islamic Law of Contract, Islamic Law provides that a person who is competent to understand the risk and liability. There are some impediments imposed by Islamic Law upon the contracting capacity i.e minority, lunacy, insanity, death illness, insolvency, coercion and forgetfulness. The Contract Act, 1872 also put some exception to the contracting capacity. Minor, person of unsound mind and person disqualified by law is incompetent. Classical Islamic Law only honor the contractual capacity of a natural capacity but Pakistani Law also recognizes the separate corporate personality of companies and corporations. In Islamic Law it is either an offer or not but no otherwise but there is an exception to this general rule that is the case of auctions. Islam law recognize auctions in which one invites others to offer some bid. Invitation to treat is not recognized in Islamic Law. Pakistani Law give room to invitation to treat. Pakistani Law honor auctions, transfer of share etc by invitation of offer.

Nothing to See Here? The Extension of Parent Company Liability in James Hardie Industries plc v White

In James Hardie Industries plc v White, the New Zealand Court of Appeal considered circumstances where a parent company could be directly liable for defective products produced by its subsidiary while upholding the principles behind separate corporate personality. The Court passed off the case as an unexceptional development in the law, based on an application of ordinary tort law principles and supported by decisions from overseas jurisdictions. However, the Court neglected to consider the underlying policies of the cases it cited, ignored important distinctions between them and the present case and did not inquire into whether they were in fact relevantly applicable. In fact, the Court extended parent company liability for the acts and omissions of its subsidiary far beyond what courts in overseas jurisdictions have held. In doing so, the Court implicitly lifted the corporate veil and failed to acknowledge the impact such a finding of liability would have on the corporate form.

Piercing the Corporate Veil of An Incorporation to Ascertain the Real Actors: the United Kingdom Approach

A cardinal principle in corporate law is that shareholders of a company are not made liable for the obligations of such incorporation above the capital they invested in exchange for their subscribe shares. However, the greatest argument with UK’s approach to maintaining the sanctity of the doctrine has been whether or not courts should continue to uphold or disregard this principle of separate legal personality when called upon to do so and under what circumstances can this be equitably done? Since the SALOMON decision, the courts have time and again been called upon to either uphold the principle of separate legal personality or to have the veil of incorporations lifted in other to hold members personally liable for the debts of the company that they operate. Thus, this paper aims at examining the doctrine of corporate veil within the UK context and the attitude of the courts in upholding this principle of law. It will also pay specific attention to the circumstances under which the separate corporate personality can be disregarded.

Nothing to See Here? The Extension of Parent Company Liability in James Hardie Industries Plc v White

In James Hardie Industries plc v White the New Zealand Court of Appeal looked to determine circumstances where a parent company could be directly liable for defective products produced by its subsidiary while upholding the principles behind separate corporate personality. The Court passed off the case as an unexceptional development in the law, based on an application of ordinary tort principles and supported by decisions from overseas jurisdictions. However, the Court neglected to consider the underlying policies of the cases it cited, ignored important distinctions between them and the present case and did not inquire into whether they were in fact relevantly applicable so that it in fact extended parent company liability for the acts and omissions of its subsidiary far beyond what overseas jurisdictions have held. In doing so, the Court implicitly lifted the corporate veil and failed to acknowledge the impact such a finding of liability would have on the corporate form.

Reverse-Piercing of the Corporate Veil in Canada

In the most common type of veil piercing, the plaintiff is trying to make a shareholder liable for the debts of the corporation. It is less well recognized that there is a second type of claim that has sometimes been referred to in Canadian courts as piercing the corporate veil, where the claim is not to make a shareholder responsible for the debts of the corporation, but the reverse. The plaintiff states that the defendant is the beneficial owner of assets in a corporation. The court is asked to disregard the separate corporate personality and use the corporation’s assets to pay the defendant’s debt. This is widely recognized as a separate category and referred to as “reverse piercing” in the United States. There are good legal grounds for allowing such a claim in certain circumstances. It could be justified either because the corporation holds the property in trust, or because the failure to pay the debt is oppressive. In the latter case, the court has discretion under the Business Corporations Act to craft whatever order is necessary to create an equitable remedy. In Yaiguaje v. Chevron Corporation, the majority of the Ontario Court of Appeal did not appreciate the variety of usages of piercing the veil. The dissenting judge correctly noted that the precedents relied on by the majority were “decisions respecting liability, not judgment enforcement decisions.” It stands to reason that the hurdle for reverse piercing should be lower than in the more common claims that seek to circumvent shareholder immunity.

Piercing the Corporate Veil in the UK: The Never-Ending Mess

Predictability and certainty are the distinctive features of English law as one of the leading choices to govern commercial contracts worldwide. Unfortunately, an area which cannot be praised for that is the ‘Doctrine of Piercing the Corporate Veil’. This doctrine and its yet unresolved issues have been threatening nothing less than two cornerstone principles for commerce and modern economy: the separate corporate personality and limited liability. After many frustrated attempts to cast light on this field, the UK Supreme Court justices in Petrodel Resources Ltd v. Prest tried once again to provide clarity by circumscribing the doctrine to excessive narrow limits. However, by ‘piercing’ that apparent veil of clarity and by analysing three subsequent rulings this article demonstrates that the confusion underlying the decision has indeed aggravated the mess, paving the way to the emergence of an ‘unnamed’ and ‘unrestricted’ doctrine now spread among conventional remedies.

The Inadequasy of Existing Concepts of Corporate Group Liability and New Doctrines

Since end of 19th century Salomon principle has been at heart of English company law. The facts in Salomon v Salomon & Co Ltd (1897) are well known and need not to be repeated here. In essence, this principle provides that, upon incorporation, a company becomes a separate legal entity which, in eyes of law, is not different from a human being. A corporation has rights, duties and obligations of its own which are different from those of its incorporators. As a result, companies can hold properties, they can contract in their own name, they can sue and be sued and, more importantly, companies can be liable for their own debts. The latter provides justification for limited liability. This principle was conceived by House of Lords in order to allow a sole trader (Mr Salomon) to avail himself of benefits of limited liability by conducting business activities through a corporation. The House of Lords did not realise what consequences of their decision would be in following decades because there were not corporate groups at that time. During course of last century, principle of separate corporate personality was applied to groups of companies in order to allow a parent company to avail itself of limited liability in relation to activities of its subsidiaries just like Mr Salomon did in relation to activities of his own company. Whether House of Lords intended to give rise to such an outcome remains doubtful. Nevertheless, limited liability has benefitted our global economy as no other legal fiction has ever done and it has been described as the corporation's most precious characteristic. On other hand, it is often claimed that this regime encourages excessive risk-taking in running of company's affairs. After all, the riskier more profitable is a basic rule in investment activities. In such scenario, it is not hard to envisage a potential danger of moral hazard. The business owners lose nothing when things go wrong but become richer if risk does not materialise. As a result, limited liability may give rise to unfairness particularly in cases involving tortious liability for personal injuries by externalising risks and costs that ought to be internalised by corporation as a better risk taker and cost bearer. Liabilities can be avoided by interposing a subsidiary or, more commonly, different layers of subsidiaries between injured party and decision-making centre, be it a parent company or its controlling shareholders. The situation is further exacerbated when it comes to multinational groups. Not only will ultimate controller be protected by corporate veil but also by a jurisdictional veil. The combination of corporate and jurisdictional veils makes attribution of liability to parent in home country almost impossible. The difficulties mentioned above are graphically illustrated by seminal case Adams v Cape Industries Plc (1990). The effect of this is that a corporate group acts as a single living being for a single economic purpose but when it comes to liabilities then it consists of separate legal entities and only entity which happens to be in a direct relationship with injured party will bear responsibilities. This is most unfair when injured parties are tort victims who are often referred to as involuntary creditors. Unlike voluntary creditors, they have limited ways of assessing and mitigating their risk when dealing with companies. They have no chance to bargain with corporation over allocation of risk. Yet, they will bear risk of loss if subsidiary has insufficient assets to provide adequate compensation. They will not be able to rely on assets of parent since, as shareholder in subsidiary, its assets can be touched only up to unpaid amount on its shares. A modification of existing concepts of corporate group liability is clearly required if justice is to be achieved in such cases. Hence, in first part, this paper seeks to identify shortcomings of current approach to attribution of liability in corporate groups and analyses adequacy of exceptions to otherwise inviolable separation of personality in a parent/subsidiary relationship. Secondly, it explores new approaches and doctrines put forward by eminent academics such as Philip Blumberg, Nina Mendelson, Hannsman & Kraakman and many others in an attempt to address unfairness and inefficiencies generated by existing concepts of intra-group liability.

The Legal Measures against the Abuse of Separate Corporate Personality and Limited Liability by Corporate Groups

The Legal Measures against the Abuse of Separate Corporate Personality and Limited Liability by Corporate Groups

The Curious Case of Directors' and Officers' Liability for Supervision and Management: Exploring the Intersection of Corporate and Tort Law

Directors’ and officers’ liability under corporate and securities laws continues to be a hotly debated subject. Yet, their liability toward non-shareholder third parties under common tort law and statutory provisions has generated relatively modest scholarly interest. Thus, it has gone mostly unnoticed that corporate directors and officers can be held personally liable in tort to non-shareholder third parties based on failures in exercising their core corporate duties - supervision and management.However, as this article explains, the current liability regime in this area is in need of repair. It fails to distinguish between the corporation’s duties and the duties of directors and officers, neglects the separate corporate personality of the corporation, unduly shifts the risk of doing business to directors and officers, and undermines the heightened liability protections provided to directors and officers by corporate laws. Consequently, a new approach is required. This article proposes a novel model for corporate liability that is centered around the nature of directors’ and officers’ duties and focuses on the individual’s state of mind. At its core, the proposed model is based on the belief that in order to preserve the corporate shield, liability standards in tort law should not conflate the standards imposed on individuals with those imposed on directors and officers.

Limited liability, shareholder rights and the problem of corporate irresponsibility

There has long been a tendency to see the corporate legal form as presently constituted as economically determined, as the more or less inevitable product of the demands of advanced technology and economic efficiency. Through an examination of its historical emergence, focusing in particular on the introduction of general limited liability and the development of the modern doctrine of separate corporate personality, this paper takes issue with this view, arguing that the corporate legal form was, and is, in large part a political construct developed to accommodate and protect the rentier investor. It is, moreover, a construct which institutionalises irresponsibility. Against this backdrop different ways of trying to resolve the problem of corporate irresponsibility are explored. The key, the paper suggests, is to be found in decoupling the privilege of limited liability from rights of control.

Capitalism without the capitalist: The joint stock company share and the emergence of the modern doctrine of separate corporate personality

(1996). Capitalism without the capitalist: The joint stock company share and the emergence of the modern doctrine of separate corporate personality. The Journal of Legal History: Vol. 17, No. 1, pp. 41-73.

Stealing from the Small Family Business

ions for personal use are not for the benefit of the company itseIf. This view accords with the fundamental principle of separate corporate personality and reflects sound policy considerations in that it prevents abuse of the corporate structure. D. Maintenance of Capital Doctrinel°5 Another doctrine can be relied upon to support the conclusion that the absolute controllers are unable to consent on behalf of the company to the abstraction; this is the maintenance of capital doctrine. This principle was developed in number of late nineteenthcentury casesl06 and was well summarised by Brooking J. in Roffel:l07 every transaction between company and any of its members, by means of which any capital is repaid to him, is prohibited, unless the court has sanctioned the transaction. 1()8 There are dicta in number of casesl09 suggesting that if the maintenance of capital doctrine is breached this will be ultra vires the company. Since the ultra vires principle has been effectively abolished, this raises the question as to whether the maintenance of capital doctrine is also affected. It is submitted that the latter doctrine is not concerned with lack of capacity; the company does have capacity to return capital to its shareholders but this is illegalll° and so invalid. maintenance of capital doctrine does not come within the tenns of the new section 35 of the Companies Act 198S, and there is no indication that this section was intended to exclude the maintenance of capital doctrine. doctrine is of particular application to abstractions from absolutely controlled companies. lt is clear that if the maintenance of capital doctrine is transgressed then the shareholders are unable to authorise or ratify payment.'ll In Re Halt Carage (1964) Ltd.'32 '05 This is analysed very well by G. Williams in Theft by Controllers-A New Zealand View (1989) 38 I.C.L.Q. 913, 921-923. MacDougall w. Jersey Imperial Hotel Co. Lld. (1864) 2 H. and IU. 527; Re Exchange Bank Co. (1882) 21 Ch. D. Sl9; Guinness v. Land Corp. of lreiand (1882) 22 Ch.D. 349; Treor v. Whitworth (1887) 12 App. Cas. 409. It is possible to return capital to shareholders under the Companies Act 1985, but strict conditions must be complied with. Return of c3pital is now governed by ss. 135ff. (reduction of capital) and ss. lS9ff. (redemption or repurchase of shares) Companies Act 1985. l07 [19BSI V.R. 511, S25 As with an ultra vires disposition, disposition of company property in contravention of the maintenance of capital doctrine cannot be ratified, even by the unanimous decision of all shareholders: Re Exchange Banking Co. (1882) 21 Ch.D Sl9. '09 Re Exckange Banking Co. (1882) 21 Ch.D. 519; Ridge Securities Ltd. v. I.P¢.C. 11964] 1 All E.R. 275; Re Halr Garage (1964) Ltd. [1982] 3 A]l E.R. 1016; Aeling Barford v. Perto (1989) SB.C.C. 677,682. Horrwitz, Company Law Reform and the Ultra Vires Doctrinc (1946) 62 L.Q.R. 66, 7>74; Williams (1989) 38 I.C.L.Q. 913, 922: The ultra vires doctrine pertains to the capacity of the company to undertake particular act, and is not relevant to an act which is capable of performance, but is prohibilcd from being so performed. 111 Ridge Secarities Ltd. v. I.R.C. [1964] I W.L.R. 479; Re Etorsley atld WeigS7t {1982] Ch. 442. 454; Aveling Barford v. Perion (1989) 5 B.C.C. 677. 682. 112 [19821 3 All E.R. 1016, 1038. This content downloaded from 207.46.13.16 on Thu, 16 Jun 2016 06:18:04 UTC All use subject to http://about.jstor.org/terms Cambridge Law Journal 11991] 486 Oliver J. stated that a gratuitous payment out of the company's capital to member qua member, is unlawful and cannot stand, even if authorised by all the shareholderss'. SQ long as it is capital that is being abstracted from the company the absolute controller is unable to authorise the abstraceion. There is some uncertainty as to the ambit of the doctrine but ie appears that it covers borrowed money;3 this corresponds with the rationale of the doctrine, which is to protect the position of shareholders and creditors.