Legal Personality and Limited Liability Essay Example | Topics and Well Written Essays - 1000 words

Legal Personality and Limited Liability - Essay voiceThe law is prepared sometimes to examine the familiarity faade and this process is described as piercing or lifting the corporate veil. The fact that a company is a unit that is thought as heavy and free from its owners can sometimes produce undesirable results. For instance, shareholders can obtain funds illegally and then be regarded as not liable to repay or in a case where the directors are liable of fraudulent activities. The courts have been forced to intervene in some deal and disregard the doctrine of limited liability and corporate personality peculiarly the case of group companies and their subsidiaries where the entity form is being manipulated as a tool to commit fraud. The case of Salomon Vs Salomon & Co. Ltd in 1987 established the irrevocability position in common law of legal personality and limited liability of companies (Butterworth, 1960, p.6).Some of the circumstances that lead to court intervention include the following trading with an enemy, the case for sham companies, failure to comply with the legislation laws, fraudulent and wrongful trading, disqualified directors actions and statutory power abuse. For instance if a company is a sham one i.e. formed to enable one avoid obligations such as tax, the court whitethorn act to ignore the companys existence.In case the court discovers that a fraud is committed, it is prep... The fraud will notably be a case where a company owner used the company intentionally to deny his creditors their legal rights. It discourages Solomon principle to act as a vehicle of fraud. The exemption which illustrates fraud are set up in Gilford ram Ltd Vs Jones Lipman. In this case, Mr. Horne who was as ex -employee of the company incorporated another limited company in his spouses name. In so doing, he solicited the clients of Gilford Motor ltd as his employment contract held it clear that he cannot solicit customers of the organization. The court held th at the companys idea behind its formation was to commit fraud and to mask Mr. Hornes effective prolongation of the business. The court held that it was a sham to mask his wrongdoings as it was very clear that the objective of incorporating that company was to commit fraud. The court at it discretion may chat liability on people liable for carrying out the business with an intention of defrauding the creditors at the winding up of the business. The directors are also liable if they sign a cherub or a bill of exchange on companys behalf and fail to include the companys name, omits a word or writes it incomplete (Oliver, 1971, p.66).Common law provides for separate legal entity of a company and the court disregarded this legal personality and instead has investigated the shareholders personal quality or those who usually controls the company. The reason behind this is because it is the public pertain to make sure that the company is not run by an undesirable person and that it is no t under any criminal element.Trading with an enemy especially during the time of war is another instance that leads to lifting of the veil of incorporation. In Daimler Company