Lifting of corporate veil, Slides of Law

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Business Law

Lecture 4

Corporate Personality, Lifting the Veil

and a Company’s Constitution

The Corporate Personality

• (^) Through incorporation a company becomes a separate legal entity distinct from its members (shareholders) and those that work for it – its employees Salomon v Salomon (1897)

Effects of a Corporate Personality

1. A company has limited liability
2. A company can sue and be sued in its own right
3. A company can be a party to contracts (eg buy goods, employ staff)
4. A company can continue to function after the death of a shareholder

Macaura v Northern Assurance &

Co [1925]

The ‘Veil of Incorporation’

The law recognises a separation between the assets of a company and those of the members. The barrier between the two is called the veil of incorporation

Lifting The Veil of Incorporation

Is done to:-

• (^) Attack the members behind the company
• (^) Reveal the true reality of what’s going on
• (^) Stop the company trading with the enemy
• (^) Stop fraud or other illegal acts

What is a constitution?

a written statement outlining the rules, powers, rights and practices under which a country, club company, council will operate A company’s constitution governs members, directors and other employees

The articles of association

• (^) This regulates the internal working of the company and typically covers the balance of power between members and directors, conduct of meetings, matters to do with shares and the distribution of assets
• (^) Promoters may choose to write their own articles or they can rely on the ones in the CA’06 known as the model articles
• (^) Articles are not generally written in stone

Hickman v Kent or Romney Marsh

Sheepbreeders Association (1915)

The company failed to deal with the expulsion of a member in accordance with the company’s constitution The member went to Court arguing this was a breach of contract and the court found in his favour

The good points about incorporation

1. A company has its own personality and is a separate legal person.
2. A company’s members have limited liability.
3. A company can outlive shareholders.
4. A company can own property and enter into contracts.
5. A company can borrow money.