Salamon Vs Salamon - corporate veil Flashcards
Why form a company
Advantages
Limited liability - limited for debts of the company
Separate legal personality - can be and can sue
Separation of ownership and control - shareholders own the company and board of directors handle the day to day running of the company
Corporate personality is very important
Consequences of separate legal personality
Separate legal person able to sue or be sued
Can hold property in its own name
Saloman vs saloman
Shoe make
Saloman was a shoe trader
He created a company with a view of attaining limited liability and to that he complied with the relevant Companies Act
At that time, the relevant company act 7 plus people to subscribe to the constitute document
Salomom had 2001 shares and gave one each to his wife, daughter and 4 sons.
Company became insolvent, a liquidator sued Mr Salomom on behalf of the creditors for the money owed
If the corporate veil is pierced,
court may find you personally liable for business debts or actions taken by the business. The idea of separate personality is ignored.
Salomon vs saloman case where corporate veil was respected.
However there
Instances when the veil can be lifted such as fraud where some take advantage of the company’s separate legal personality to benefit themselves personally or where there is illegal conduct taking place.
It refers to the possibility of looking behind the company’s framework as a result, where the corporate personality may be ignored - this ignorance gives rise to the corporate veil being lifted.
House of Lords
Investigated and realised that Mr Salamon had complied with the relevant companies Act as it was a separate legal personality
Lifting or piercing the corporate veil and veil of information
Are the same thing
Veil of incorporation
The judicial respect so a judge will pay respect to the separate corporate personality and the related limited liability a company may have
Veil of information
The legal assumption that the acts of a corporation are not the actions of its shareholders, directors and managers as the separate legal personality and limited liability aspects are taken into consideration, this may exempt from liability for corporations actions
Why is a corporation advantageous
Due to the limited liability it offers for company owners
In a corporation, owners are not liable for business debts
Concept of corporate veil
A corporation is actually a separate entity
If there isn’t a clear distinction between what you’re doing as an individual vs what the corporation is doing, court or law may pierce the corporate veil = hold you liable for actions taken by the business
Case of Jones v Lipman
Where the defendant agreed to sell land to claimants but transferred land to a company he owned himself. The held company was a mask to avoid recognition by the law. Court realised this and pierced the corporate veil due to its unlawful nature. This is an important case that highlights the consequences of fraud/scam in relation to corporate veil
Gilford Motor Co ltd v Horne
The defendant entered into an agreement that after his employment is terminated, he shall not entered into competing business. However, instead of obeying the agreement, he set up a competing business with his wife as shareholder.
Court pierced the veil in this case as they held that the formation of the company was a mere sham to enable him to breach the agreement.
