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Company Law - Case Study Example

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Company Law

These people are called "owners", composed of the incorporators, directors, and the stockholders. Another point to consider is that a corporation, once approved, has a legal personality separate and distinct from its owners. Having a legal personality separate and distinct from its owners gives the corporation a limited liability to shareholders. Limited liability is a legal doctrine which means that if a "plaintiff wins a court judgment against the corporation, he (the plaintiff) cannot satisfy the judgment out of the personal assets of the owners, rather, the plaintiff must collect from the assets of the corporation".2 Limited liability is likened to a "veil" that offers the owners of the business protection for their personal assets, like for instance, if one of the co-owners or employees commits an unlawful action that injures someone, or if someone sues the corporation for non-payment of debt.3
But is the limited liability doctrine absolute The answer is it is not.4 The corporate law protection of limited liability can be lost through 1) piercing of the corporate veil, 2) defective incorporation, 3) improper signing of documents.5 This essay aims to discuss piercing the corporate veil by first explaining the limited liability rule followed by ...
This doctrine is used when the property or assets of the corporation is not enough to support its liabilities.6
"The phrase relies on the metaphor of the 'veil' that represents the veneer of formalities and dignities that protect a corporation, which can be disregarded at will when the situation warrants looking beyond the 'legal fiction' of a corporate person to the reality of other persons or entities who would otherwise be protected by he corporate fiction."7
The formation of this doctrine can be traced beginning from a number of cases formulating the law formulating the law principle of separate and distinct legal personality of corporations. This principle of English law company was firs laid down in the case of Salomon v. Salomon.8 Mr. Salomon formed a company by apportioning one share for each of his family members to comply with the statute at that time which required at least seven members to form a company. Mr. Salomon later became a secured creditor of the company. When the company fell on hard times, it paid Mr. Salomon's debenture. The unsecured creditors claimed all the remaining assets of the company arguing that it worked as an agent for Mr. Solomon. The Court held otherwise. The effect of this rule is that the individual subsidiaries with in a conglomerate will be treated as separate entities and the parent cannot be made liable for the subsidiaries' debts or insolvency.9
Attempts to lift the principle of separate and distinct legal personality of corporations were unsuccessful in a number of cases that followed after the establishment of the said principle. For instance, in Adams v. Cape10 , it was held that the corporate veil cannot be lifted ...Show more

Summary

There are no rules, other than the principles of fairness and justice, to dictate when the court should lift the veil of corporation, rendering therefore the parent company liable for the debts of the subsidiaries."
In this period of recession which is experiences in all parts of the world, many are inclined in going into business…
Author : nadereldred
Company Law Case Study essay example
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