There is no compact and universal definition of the company. On the other hand, a company can be described for legal purposes as an independent person having an existence separate from that of the human beings who own, manage and serve. The company neither stops existing with the change of the members or managers nor dies with the death of the formers of the company. It is this concept which allows limited liability for shareholders as the debts belong to the legal entity of the company and not to the shareholders in that company.
At the same time the courts have to maintain a watchful eye on any misuse of the corporate form. Lifting the veil refers to the possibility of looking behind the company‘s separate personality to make the members liable, as an exception to the rule that they are normally shielded by the corporate shell.
“The question specifically asks that there is no merit in imposing a more integrated regime on groups of companies which would take away flexibility and strike at the limited liability basis of the company”. It also asks that there is “no evidence of abuse of corporate status by parent companies”. In order to assess the validity of the statement, we need to critically analysis the concept of corporate group structure. In this essay we will firstly define the company and its functions. Secondly we assess the concept of the limited liability which is the essential characteristic of the company; thirdly we explain the corporate personality and corporate group structure and the concept of the veil lifting. In order to discuss the abuse of the corporate status there is a need to define the parent and subsidiary companies, discuss the special relationship of parent to its subsidiary and any potential liability of a parent for the acts of the subsidiary.
The institution of limited liability for companies has typically been regarded as one of the most important innovations of the late industrial revolution period. This view was appropriately expressed by Professor N.M. Butler, who stated: “The limited liability corporation is the greatest single discovery of modern times… Even steam and electricity are less important than the limited liability company”. Commentators generally consider that limited liability has been proved a vital instrument in the attainment of economic growth. However, recent analysis of the limited liability principle has questioned its potential.
The company can be defined as the legal recognition by the state of a connected group of individuals who pool together their capital to pursue some commonly agreed aim. The formation of a company is governed by the Companies Act 2006 (CA 2006), ss 715.
The company is regarded as a wealth creation vehicle in the modern world. The company has the following functions:
Limited Liability Theory Of The Company
Exceptions To Limited Liability
Essential Characteristics Of Incorporation
Separate Legal Entity
When a company is incorporated it is treated as a separate legal entity distinct from its promoters, directors, members, and employees; and hence the concept of the corporate veil, separating those parties from the corporate body, has arisen. John P. Lowry has expresses that the principle of “corporate personality” has long been regarded as a corner stone of English law. In Salomon v. Salomon & Co. Lt., Lord Macnaghten expressed the principle in the following unequivocal terms:
“The company is at law a different person altogether from the subscribers to the memorandum; and though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or the trustee for them”.
Organs Of Control
The two main organs of the company are as follow:
Board Of Directors
Board of Directors is a key organ of the company. Directors usually define and execute the general policy of the company. They sometimes referred to as the mind of the company and the body through which the company acts. The directors can delegate its powers or its part to other directors or any members and authorizes them to act in order to pursue the objectives of the company. In doing so, the directors ultimately retain the responsibility for monitoring the delegated powers. This is, therefore, pro-active delegation is which directors owe a duty to act with due care, skill and diligence.
The second and the principal organ of the company is Annual General Meeting (AGM) in which all the shareholders or members who have right to vote are included. The shareholders could be a natural or legal person who has invested in the company and in return has taken shares. They also have right to vote and participate in the affairs of the company.
Separate Legal Entity
The company is regarded as a separate legal entity which is separate from the persons who formed it. The company can be formed under s 7 of Companies Act 2006 (CA 2006).
Group Of Companies
Lifting The Corporate Veil:
Common Law Situation
Modern Law Situation
Courts Struggle In Lifting The Veil
Corporate Group Structure:
Abuse Of Corporate Structure By The Parent
Limited Liability And Veil Lifting:
Criminal Liability I-E Corporate Manslaughter
Veil Will Not Be Lifted In The Interest Of Justice
Abuse Of Corporate Status:
Liability Of Parents For The Acts Of The Subsidiaries:
Problems In Imposing Integrated Reginme On Group Of Companies:
It Would Take Away Flexibility.
In order to critically evaluate the concept of the corporate group structure we have to answer the following questions:
a) The concept of corporate personality;
b) The key effects of corporate legal personality in relation to liability;
c) The difficulties the courts face when having to decide whether to maintain or disregard the veil of incorporation;
d) The situations where legislation will allow the veil of incorporation to be lifted;
e) The complexity posed by group structures.
1. What do we mean by ‗separate legal personality‘?
2. Will the death of a shareholder cause the dissolution of a company?
3. What is meant by perpetual succession?
4. What is the most important consequence of incorporation for a company?
5. What is the veil of incorporation?
6. Describe the situations where legislation will allow the veil of incorporation to be lifted?
7. Explain the main categories of veil lifting applied by the courts?
8. Explain the difference between section 213 and 214 of the Insolvency Act 1986?
9. What is a ‗group entity‘?
10. What was decided in Adams V Cape Industries plc?
Mayson, French and Ryan, Company Law, Chapter 5 pages 118-153
Dignam and Lowry, Company Law, Chapter 2 pages 14-51
Davies, Chapter 8, 9
Sealy, Cases and Materials on Company Law, Chapter 2, pages 31-95
Ottolenghi, S.  ‗From peeping behind the corporate veil to ignoring it completely‘, MLR 338
Gallagher and Ziegler ‗Lifting the Corporate Veil in the Pursuit of Justice‘ (1990) JBL 292
Rixon, F.G.  ‗Lifting the veil between holding and subsidiary companies‘, 102 LQR 415
Samuels, A, ‗Lifting the veil‘,  JBL 107
Png ` Lifting the Veil of Incorporation: Creasey V Breachwood Motors: A Right Decision with the Wrong Reasons‘  Co Law 122
Rixon, ‗Lifting the veil between holding and subsidiary companies‘ (1986) 102 LQR 415
Tham C ‗Piercing the corporate veil: searching for the appropriate choice of law rules‘, 
Muchlinski, P.T.` Holding multinationals to account: recent developments in English litigation and the Company Law Review ‗, [ 2002] Co Law 168
Salomon v Salomon and Co.  AC 22(HOL)
Broderip v Salomon  2 Ch 323
The Consequence Of Separate Personality
Macaura v Northern Assurance Co  AC 619-members have no interest in the company‘s property
Re Lewis‘s will trusts 1 WLR 102
Lee v Lee‘s Air farming  AC 12A company may contract with its members
Acatos and Hutcheson plc v Watson  1 BCLC 218
Re Noel Redman Holdings Pty Ltd  Qdr 561a company survives the death of its members
Foss V Harbottle [1843} 67 ER 189 -members of company cannot sue on its behalf
Veil Lifting By The Courts
Sham or pretence; evading enforcement of existing rights
Gilford Motor Company v Horne  Ch 935
Jones v Lipman  1 WLR 832
Trustor AB V Smallbone
Re A Company  1BCC 99421 Façade
Re Bugle Press  Ch 270
Continental Tyre and Rubber Co (Great Britain) Ltd V Daimler Co Ltd  2 AC 307
Means to perpetuate fraud
Re Darby, ex p Brougham  1KB 95
Aveling Barford Ltd V Perion Ltd [1989} BCLC 626 Agency relationship
RE FG Films Ltd  1 WLR 483
Smith v Stone and Knight Ltd v Secretary of State for transport  2 All ER 116
DHN v Tower Hamlets London Borough Council  3 All ER 642
Woolfson V Strathclyde
Adams v Cape Industries plc 1 All ER 929
Creasey V Breachwood Motors Ltd  BCC 638
Ord v Belhaven Pubs Ltd  BCC 486
Yukong Lines Ltd of Korea v Rendsburg Investments Corporation (No 2)  BCC 870;  4 All ER 82
Ratiu V Conway  1 ALL ER 571
Samengo Turner V J& H Marsh & McLennan (Services) Ltd  2 All ER (Comm) 813
Beckett Investment Management Group Ltd V Hall  EWCA Civ 613
Raja V Van Hoogsstraten  The Times August 23 Corporate veil lifting in tort cases
Lubbe and Others V Cape Industries plc 1 Lloyd‘s Rep 139
Connelly V RTZ Corp Plc ( No 2) [ 1997] 4 All ER 335
Williams V National Life Health Foods Ltd  2 All ER 577
Section 213 – 215 Insolvency Acts 1986
Re Patrick and Lyons Ltd 
Re Produce Marketing Consortium Ltd
Re Todd Ltd  BCLC 454
Section 399 CA 2006
Section 409 CA 2006
Cite This Work
To export a reference to this article please select a referencing stye below:
Related ServicesView all
DMCA / Removal Request
If you are the original writer of this essay and no longer wish to have your work published on LawTeacher.net then please: