BUSINESS LAW PRESENTATION - Essay Example

Any debts of the company thus are not the responsibility of the shareholders save to the extent of the value of their investments in the company. The case of Solomon Vs Solomon ([1897] AC 22) laid strong foundation for this principal and has been cited as a landmark case in times of debate and confusion by the courts all over the world. The judgment also recognised that the principle was to be of general nature assuming that there was "no fraud and no agency and if the company was a real one and not a fiction or a myth.

" Hence one can say that the courts would disregard corporate form in case it was used: Over the years the corporate veil has been pierced in the circumstances when the courts have gone beyond the artificial legal status of a corporate to fix responsibility on human interface this is commonly known as piecing (lifting) the corporate veil. Based on the decided cases the circumstances under which the courts have 'lifted the veil of incorporation' can be broadly categorised as follows: 1. 1. Where a relationship of agency is found to exist - In the case of Smith, Stone and Knight v Birmingham Corporation [1939] All ER 116 the plaintiff company successfully received the compensation for the land on which its subsidiary was located, acquired by the defendant by proving that the subsidiary had acted as its agent at all the times and it should not be treated as a separate legal entity from it.

The court looked for six affirmative answers to the questions for deciding the case which were; a) treatment of the profits that of the parent b) managers of the subsidiary appointed by the parent c) was the parent the "head and brains" of the trading venture d) did the parent govern the venture e) the skill and control of parent enabled the profit of the subsidiary f) was the parent de facto constant controller of the subsidiaryIn the case of Munton Bros Limited v Secretary of State [1983] NI 369 the judge opined that while courts are loath to treat a company as an agent of individual shareholders, they are not that reluctant to treat a subsidiary of a parent as its agent as in such a case the concept of incorporation is not violated.2. Where the company is being used as a mechanism to avoid legal obligations - Here the decisions as based on whether the legal obligations are present or future.

In case present legal obligations are being avoided, the courts have disregarded the corporate identity as in the cases of Cummings v Stewart [1911] 1 IR 236 and Mastertrade (Exports) Limited v Phelan 4 December 2001, Unreported, High Court (Murphy J) the legal obligations were sought to be avoided behind the cloak of corporate structure which as pierced by the courts. In the case of Adams v Cape Industries [1990] Ch 433, the courts refused to disregard the corporate identity as it was an inherent right within the corporate law to use the corporate structure such that the future legal liabilities fall on another company