Topic 10: Company law: Personality and Types of businesses

Question 1

What does separate legal personality mean?

Answer 1

Company is a separate legal entity from its shareholders and has its own duties and rights.

Also known as the corporate veil or Salmon principle.

Question 2

When is the veil of corporation lifted?

Answer 2

To avoid inequitable results.

Question 3

What are the certain circumstances under which the court will pierce the veil of corporation?

Answer 3

1) If the court is interpreting a statute or document and needs to treat a group as a single entity for the sake of clarity;
2) If incorporation is a mere facade
3) To reveal true commercial reality

Question 4

What are some examples of the consequence of a company being a separate legal entity?

Answer 4

The company can sue and be sued
The company can be a party to a contract
The company can commit a tort;
The company can be a victim of tortious behaviour;
The company has human rights;
The company can commit a crime;
The company can be the victim of a crime;
The company has perpetual existence until dissolved;
The company has “owners”

Question 5

Explain the case relating to Single entity (Key fact, principle)

Answer 5

Adams v Cape Industries plc (1990)

Had two subsidiaries - NAAC in the USA and Capasco for its other worldwide marketing operations. NAAC had ceased trading when they wanted to sue so they tried to sue cape (parent company).

Cape were neither present within the US, nor had they submitted to the jurisdiction there, so claimants could not enforce the Texan judgments against the English parent company.

Question 6

Name 3 main advantages of separate legal entity

Answer 6

1) insulate the directors and owners of a single company from liability
2) in larger businesses, to separate out new projects and joint ventures in special purpose vehicles
3) trade in different countries with subsidiaries formed under local law