Lifting the Veil of Incorporation Case Study Example | Topics and Well Written Essays - 1500 words

Lifting the Veil of In friendship - Case Study ExampleThe doctrine of separate personality of a corporation engendered by the sheer act of incorporation is a well entrenched principle in English law. The doctrine simply states that once a company is formally incorporated in accordance with law, it starts to possess a personality of its hold, one distinct from its members and stockholders. This distinct personality, by fiction of law, protects a corporation from the consequences of the individual acts of its members and stockholders. The principle had its beginnings in the Roman law and was officially adopted by English law in the early case of Salmon v The Hamborough Co (1671) 1 Ch Cas 2041. Unfortunately, this principle had been, time and again, employed as a vehicle to evade individual liabilities and responsibilities that the courts were compelled to lift the veil, so to speak, that separates corporations from their stockholders. Recent developments in the corporate world, howeve r, had make it difficult to anticipate when judicial interference will be exercised to lift or pierce the veil of incorporation as courts have exhibited equivocations in discourse lifting-the-veil cases in the past. The case of Adams, however, seemed to have narrowed down the principles when judicial interference may be exercised in such cases.In the early days before the approaching of complex corporate structures, there was not much question about the application of the corporate separate personality or the lifting of the veil cases. ... The economy in brief turned bad which affected Salomon Ltds business, forcing it to seek loans from outside creditors among which was a Mr. Broderip. The company, however, failed to revive itself and paying the loans became difficult. Broderip sued to obtain payment for his secured loan and the company went into liquidation. 2 The liquidator, subsequently intervention the companys winding up, argued that the corporation was a fraud and that th erefore Salomons debentures should be made to apply as payments to the companys creditors. The decision was debunked by the House of Lords which sustained the separate nature of the companys personality from that of Mr. Salomon. The HL held that, on its face, the incorporation was valid and in accordance with the formalities of law and therefore the court is precluded from reading meaning or inserting their own version of the law into its incorporation. There was nothing unlawful about Salomon holding ownership of more than half of the companys shares or of the fact that the subscribers or incorporators were all members of his family to which he wielded great influence upon. 3Judicial InterferenceAlthough the Salomon principle had since been held the classic view, court decisions have swung from one side to another that it became difficult to anticipate whether they would cleave to the Salomon principle or not in every case. The basic presumption is that the court will lift the vei l of incorporation in instances when equity demands that umpire be dispensed. Yet, court decisions have shown that there was no clear-cut rule as to what constitutes injustice that would merit court intervention and disregarding the principle held in the Salomon case. 4 This equivocation is illustrated in the