6b The Veil of Incorporation

Question 1

What is the veil of incorporation?

Answer 1

The term that refers to the fact that a company is a separate legal entity from its directors and shareholders.

Question 2

What are the consequences of being a separate entity?

Answer 2

• Enter contracts into their own name.
• Has perpetual succession.
• Company is liable for its own debts.
• Company is subject to Companies Act 2006.
• Company owns its own property.
• Management is separate from d ownership.

Question 3

Should a company fail, what is the liability of members limited to?

Answer 3

• Amount unpaid on their share capital.
• Any amount they have agreed to contribute (limited by guarentee).

Question 4

When will the veil of incorporation be lifted?

Answer 4

• Groups of companies - subs are acting as agents of the parent.
• Sham companies - company made for improper purpose.
• Quasi-partnerships - registered as a company but run as a partnership.
• Company Directors Disqualification Act 1986 - disqualified directors still managing company.
• Insolvency Act 1986 - wrongful/fraudulent trading.
• Companies Act 2006 - public company trading without trading certificate.