Law for Managers- Lifting the Corporate Veil - Essay Example

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The essay considers the wide range of circumstances where the corporate veil can be pierced and this can be both under statute and at common law. Finally, the paper attempts to evaluate the reasons why the courts decide to lift the veil and in other instances keep it firmly drawn down. …
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Law for Managers- Lifting the Corporate Veil
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Download file to see previous pages This essay talks about an association of persons or an organised body can acquire legal personality in the few ways that are recognised by the law. There are mainly three ways in which this can be effected and these are: by way of separate Act, general enabling Act or by conduct. Legal personality can be acquired by virtue of separate Act obtaining within a particular legal framework of a given country or in terms of a general enabling Act such as the Companies Act which is used in many countries. This is modelled under the English common law. Many of the English common law of companies were readily accepted by different countries which adopted this form of law as their guiding principle in the legal framework and these were also accepted by the courts with little or no modification. It can also be seen that an association of 20 persons can also acquire legal personality by conducting itself as a legal person in compliance of certain requirements. On its formation, the company as a separate entity acquires the capacity to have its own rights and duties. Once the company has been incorporated, it can be treated as an independent person with rights and liabilities that are appropriate to itself. The brief facts of the leading case were as follows: Salomon was the sole proprietor of the prosperous company and he decided to turn the business into a limited company after realising its great potential. Salomon received £10 000 in debentures from shareholders which were secured by a bond of the company’s assets. ...
The brief facts of the leading case were as follows: Salomon was the sole proprietor of the prosperous company and he decided to turn the business into a limited company after realising its great potential. Salomon received ?10 000 in debentures from shareholders which were secured by a bond of the company’s assets. However, the company faced a downturn of events and had to be liquidated through the sale of the assets. The sale of assets was far short to cover the debentures whereby the liquidator suggested that creditors had to be paid first before the debentures. Thus, the shareholders were left in the cold. Apparently, the court ruled in favour of Salomon on the reasonable ground that the company was just like Salomon. It was treated as an individual person. This given scenario aptly illustrates the magnitude to which this the concept of legal personality has come under criticism for shielding the erring company directors. Though it is generally accepted that upon incorporation, the company comes into existence as a separate entity, many divergent views have emerged which challenges the legality of this particular concept in as far as the operations of a particular company are concerned. Strydom (2007) posits to the effect that this legal provision gives more power to the directors and at times it often disadvantages the unsuspecting shareholders of that particular company. Given such a scenario, it can be noted that some directors can take advantage of this unfavourable balance in the law which can result in losses being incurred by other people. In as far as fraud is not suspected in the demise of the company, the court can rule in favour of the director since he or she can be treated just like an individual person. The company is protected as ...Download file to see next pagesRead More
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