Statements Discussions and Clarifications - Coursework Example

ments Discussions and Clarifications ments Discussions and Clarifications It has been an aspect of the debate in determining whether companies should have the classification of artificial persons. Indeed, it requires subjective analysis before a conclusive determination is made on the aspects pertaining to the debate. However, in many occasions, companies have been involved in a number of legal tussles against either other companies or involving individuals. Ideally, such an aspect has been a point of reference in making a determination of whether companies are considered as artificial individuals. Because of the fact that under the law companies have, the provision of suing an individual and getting sued, it is only appropriate that they are considered as artificial people as they experience similar instances faced by the normal human when it comes to legal tussles. Under such instances, the company, therefore, is treated as a separate entity from the other of its participants. As long as the company has a representation of a shareholder and a director, it stands a chance of being treated as an individual (Alting, 1995, 42). Despite such provisions, it is critical to state categorically that the life of a company is never affected by the death of either a shareholder or a director; instead, its life ends whenever it is wound up according to the companies act. Corporations have the preservation of the limited liability as one of the most important aspects. However, there are instances in which such protection to the limited liability is lost, and involves instances of piercing of the corporate veil, defensive incorporation, and improper signing of documents (Messmann, 2007, 181). Ideally, in instances in which the corporation does not follow the formalities of operation, in the forms of scams that are set up to defraud, a court pierces the corporate veil. Based on such a perspective, it is evident that piercing of the corporate veil only occurs in order to prevent the abuse of corporate legal personality. Lifting or piercing the corporation veil is a common term used in company law; however, very few people have an understanding of what it really means. Having understood the aspect that companies are considered as personalities, which can be sued and equally sue under company law, the companies should at all times act on their own basis. Lifting or piercing the veil in such a perspective, therefore, means a disregard of the corporate personality of a company and looking behind the real persons or individuals who are in the control of the company such as the shareholders or the directors. Such an aspect is significantly important to taking responsibility for actions by separate individuals other the company including the shareholders and directors. In order to make a determination such as the one shown above, there are a number considerations are made. Considering the case of Edwards Company Inc., vs. Monogram Industries, Inc., this involved Edwards making a claim that Monotronics and Monogram Industries had similar board of directors, office, and the same telephone. In making a determination of the case, the court made a ruling that Edwards could not pierce the corporate veil, and as such, Monogram would not be held liable for the debt of Monotronics. The ruling was because for one to pierce the corporate veil there should be proof of fraud or injustice, and a lack of separate existence. Similarly, in the case involving Presr (Appellant) v Petrodel Resources limited in which Mrs Yasmin Prest is making a claim under the Matrimonial Causes Act 1973 sections 23 and 24. Under the same, Mrs Yasmin Prest stated categorically under an application for financial relief with regard to a petition involving divorce or separation that Mr Prest solely owned a number of companies, and that they both held legal title to properties that he beneficially owned (Lidstone, Herrick and Pedigo, 2012, 118). Corporations are indeed an important aspect in the business platform. Incorporation creates a distinguishable identity from the self and as such, remains powerful tools for entrepreneurs especially in facilitating risk-taking measures. However, since corporations are never real human beings, they remain legal fictions. Based on the aspect that corporations are never real humans, I fully agree that piercing the corporate veil is an important step whenever a corporate in debts. First, despite their separate identities from individuals, they never make decisions, sign chequebooks, or even think for themselves. As such, any losses incurred by the corporation are ideal because of individuals rather than the company itself (Lidstone, Herrick, and Pedigo, 2012, 104). Based on such a perspective, it is evidently clear that piercing the veil is an essential aspect in legal matters in order to involve all the concerned parties in the operations of the organization including the directors and the shareholders. Furthermore, under the ordinary business law, corporations are, taken as single entities in their dealings and most especially during legal matters. However, there are instances in which corporations may be considered in terms of the shareholders and the directors, an instance referred to as piercing the corporate veil (Green and Education, 2009, 102). In the court’s ruling, Mr Prest was in the right and appropriate position to make the transfer of some properties to the Ex-wife of fifteen years. As such, the court had the jurisdiction of instructing for the transfer; however, an argument was made that husband had nothing wrong in relating the companies in allowing piercing the corporate veil (MacLeod, 2014, 77). Lord Sumption made the argument based on two major principles; these include the fact that the ownership and control had no sufficient proof to pierce the corporate veil, lack of unconnected third party interest, considering the fact that piercing the veil only occurs as a necessity of justice. In making the statement that, "It may be an abuse of the separate legal personality of a company to use it to evade the law or to frustrate its enforcement," he means that of piercing of the corporate veil is used by most corporations as a means of evading the legal responsibilities. In most instances, corporations, especially in instances in which there are incurred debts, would bring up the case of piercing of the corporate veil, which would drag the company’s shareholders and directors into the debt, and assuming the responsibility of the corporation (Pinto and Branson, 2004, 25). The use of the word ‘MAY’ is evident enough that it is not in all instances in which corporations would use the element of piercing of the corporate veil as an excuse to involve the shareholders in catering for the incurred debts. In other instances, the corporations take the full liability of their debts without dragging the shareholders and the directors into such liabilities (Vanderkerckhove, 2007, 212). In instances of lending, which involves corporations, in most instances directors and other shareholders sign personal guarantees as means of backstopping any corporate debts whenever need be, only to later distance themselves from the corporation on the excuse that the two are distinct entities (Kraakman and Squire, 2006, 47). In such scenarios, the best alternative to providing solutions, especially in legal matters is through piercing the corporate veil. It is illogical to exempt the personally responsible individuals from corporate issues just in the name of standalone entities. Such, I fully agree with the piercing of the corporate veil as long as the decision makers in matters pertaining to the company remain the shareholders and the directors and other officers. Additionally, in the case of Lord Sumption in which he provides two possibilities, which involve evading the law or frustrating its enforcement, reference is made to the behavior of corporations towards involving the shareholders and the directors in taking responsibilities for their debts in the event that legal matters are involved. Corporation should always stand as sole entities in legal matters as it takes the precept of a human; however, in certain instances, the implications made on the corporation are because of the actions of the shareholders and the directors. In such instances, despite the fact that the corporations are individual entities, and as such, should face the law, the corporations request to pierce the corporate veil, from which all blame, is made not only on the corporation, but also on the shareholders. Additionally, whenever piercing the corporate veil is used, the corporation’s debts are shared between the corporation and the shareholders. Under such considerations, I fully agree that piercing the corporate veil is important in protecting the corporations whenever blame is made on them despite their inability to make determinations. Corporations might also use piercing the corporate veil as a means of frustrating the course of justice from effective enforcement. Ideally, corporations offer substantive protection to the directors and shredders under various circumstances; however, such protection should never insulate against taking responsibilities for personal actions and decisions taken. Such instances amount to abuse of the legal protection offered to individuals, especially whenever the company is in debts, which then requires that the persons in control of the company take full responsibility of the situations surrounding the business. As such, I agree with the lifting of the corporate veil in instances when individuals fear taking responsibilities for their actions. Lord Sumption makes the following statement, “It is not abused to cause a legal liability to be incurred by the company in the first place. It is not abuse to rely upon the fact (if it is a fact) that the liability is not the controllers because it is a company. On a differing opinion, incorporation ideally, entails such aspects." In making such a statement, Lord Sumption tries to clarify the inclusion of shareholders as separate entities into cases involving corporation through piercing the corporate veil is not an abuse as incorporation entails engaging all the involved parties in all the affairs of the corporation as joint entities. I agree with such a provision considering that in most instances, shareholders share the corporation’s profits, therefore, all aspects should involve the shareholders and the directors (Kraakman and Squire, 2006, 12). Ideally, considering all the aspects involved in the company law and its attributes to piercing the corporate veil, in my opinion, it is important that the individuals concerned with the operations be involved in the concerns of the corporation, especially in instances in which the company makes laws. A company operates depending on the management practices of the directors and the shareholders. Additionally, shareholders and the directors in all instances share companys profits, and, therefore, should equally share in losses. Based on such a perspective, I fully support the piercing of the corporate veil. References Alting C., 1995. Piercing the corporate veil in German and American law - Liability of individuals and entities: a comparative view (1994–1995) 2 Tulsa Journal Comparative & International Law 187 Green, C., & Education, I. (2009). Shareholder liability: Piercing the corporate veil & beyond. Kraakman R., and R Squire, (2006). Law and the Rise of the Firm 119 Harvard Law Review 1333 Lidstone, Herrick K., and Mark W. Pedigo., (2012). Piercing the Corporate LLC Veil: The Law and the Proof. Denver, Colo.: CLE in Colo., Print MacLeod, Ceit-Anna (January 2014). "Case Commentary: Prest v Petrodel". Scottish Parliamentary Review (Edinburgh: Blacket Avenue Press) I (2) Messmann, S. (2007). The case law of Central & Eastern Europe: Leasing, piercing the corporate veil and the liability of managers & controlling shareholders, privatization, takeovers and the problems with collateral law. Berlin: European University Press. Pinto, A., & Branson, D. (2004). Understanding corporate law (2nd ed.). Newark, NJ: LexisNexis. Presser, S. (2005). Piercing the corporate veil (2012 ed.). Eagan, MN: Thomson/West. Vanderkerckhove, K. (2007). Piercing the corporate veil. Alphen aan den Rijn, the Netherlands: Kluwer Law International ;. Yorsz, S., & Hunt, G. (2011). Advanced piercing the corporate veil. Mechanicsburg, Pa.: Pennsylvania Bar Institute. Boston, MA (Ten Winter Pl., Boston 02108-4751): MCLE. Read More