Separation of Legal Personality and Lifting the Corporate Veil

This report covers the separation of judicial personality and the work uping of the corporate cloak from the cases of Salomon v A Salomon co ltd (1897), Catherine lee v leewards Air farming ltd (1960). Salomon v Salomon was the low gear teaching case of its human body and its principle was that a confine come with is a single out wakeless entity, in catherine lee v lee this case was reaffirmed, and Gilford Motors v Horne was the first law case to pierce the corporate veil.WHAT IS THE PRINCIPLE OF separate bodied PERSONALITY?There be 3 types of ownership gener everyy speak in the law context. There argon sole traders, partnerships and companies. Sole traders argon the sole owners to a business entity in which there is no jural distinction between the business and the owner. The owner receives all profits and is responsible for its debts as thoroughly. A partnership is when 2 or more parties correspond to advance their interests. There are 2 types of partnership, whic h are the general partners and limited partners. General partners are liable for all debts and obligations whereas the limited partners contribute work capital and are non liable for the debts of the business entity. There are 2 types of companiesPrivate limited comp some(prenominal) (LTD) & Public limited caller-up (PLC)Private limited companies is commonly owned by fewer people and usually are smaller businesses who do not trade in the line of reasoning exchange, their business accounts dont need to be audited and their statements are to a fault private, whereas public limited companies need to public their pecuniary statements and get audited. The vantage of this type of ownership over others is that there is a limited indebtedness of the owners of business as the business is a separate legal personality. kernel of limited obligation?Limited financial obligation is referring to the legal protection to shareholders, whether it be private or public limited companies in whi ch the financial liability of every shareholder of the business entities is limited to the value of their fully nonrecreational shares, in short shareholders leave not lose more than they put together in, into the business. This is because the business itself is a legal entity on its own. Creditors can only process the go with for its as enureds, any unpaid capital and guaranteed capital. The familiarity must maintain its limited liability in its name and must provide financial information for the public inspection. the concept of separate legal personality.The contractual capacitor is that a caller-up can enter into any contract chthonian its name and is as well as liable for such contracts. The separate business entity also has some legal powers, for example to sue on its own behalf and tied(p) suing its own members. It is a separate property and does not belong to any of its members. The community will still continue as normal regular in the event of death to any of the owners or any transference of any stock. The shares of the business entity are completely transferable and approvals are not required unless stated or agreed. The first principle case to make grow is Salomon v A Salomon,Mr. A Salomon was a sole trader and was doing well as a sole trader. Mr. Salomons sons became interested in connectedness the business, so he incorporated his business to a limited liability company. Mr. Salomon sold his business for 39,000 of which 10,000 was debt to him He kept 20,001 of the 20,007 shares, so he was principle shareholder and principle creditor. The company and so went into liquidation and the liquidator then accused Mr. A Salomon of fraud and stated that the debentures used as asecurity of the debt is invalid.The judge Vaughn Williams accepted his argument saying that Mr. Salomon had created the company wholly to transfer his business to it, the company in reality was his agent and he as principle was liable to debts. The House of Lords ru ling was to hold severely the doctrine of corporate personality as is mentioned in the companies act 1862, it is so that creditors of a failing company cannot take the shareholders to courts over an outstanding debt because the company is a separate legal entity. Another case that reaffirmed Salomon v Salomon is Catherine Lee v Lee Farming co. Geoffrey Lee had a farming company and held 2999 shares of the 3000, he was the sole director and chief pilot and unfortunately died in a plane crash.Mrs. Lee tried to claim for damages of 2340 chthonian the Workers Compensation Act (1922) for the death of her husband. The Privy Council advised Mrs. Lee that she is entitle to compensation, since it is possible Mr. Lee can have a contract with the company he owned. The company is a separate legal entity.It is generally the feel regarding limited companies that the entity is a separate legal personality. There are exceptions to this feel when the courts will not treat it as a separate legal entity, this is known as lifting the corporate veil. The courts will ignore the separate personality when there is fraud, or by statute, or whether its an opposite during wartime, or if there is an agency involved with complications or when there is a tort. The case of Gilford Motors v Horne where Mr. Horne was a former managing director at the Gilford motors, his employment contract clause 9 said he cannot gazump customers of the company if he were to leave employment.Mr. Horne was later fired, after that he post up his own business and undercut Gilford Motors prices, later being told he was possibly in breach of contract he decided to set up a company in which his wife and friend are directors and only shareholders. Mr. Horne later sent out fliers which read Spares and service for all models of Gilford vehicles. 170 Hornsey Lane, Highgate, N. 6. Opposite Crouch End Lane No tie-up with any other firm. This company had no contract with Gilford Motors round not competing but Gil ford Motors did bring up actions that needed attention from the courts, Which was that the company was being used as an instrument offraud.The Court of appeal did dole out the injunction and Lord Hanworth mentioned the purpose of it was to enable him, under the cloak or sham, to engage business on consideration of agreement, was one the former employees would objective to. Since the Adams v Cape indsutries case courts have changed their attitude and made the salomon principle a lot stronger. Courts will be more likely to lift the corporate veil when the court is having a look at a statute, or contracts. The court must be satisfied that the company is a faade and which should show abuse of the corporate form. Another way the courts will decide to lift the veil is if it can be proven that the company is an authorized agent of its controllers or members.