“The philosophy laid down in Salomon v Salomon & A ; Co Ltd [ 1897 ] AC 22 has to be watched really carefully. It has frequently been supposed to project a head covering on the personality of a limited company through which the tribunals can non see. But that is non true. The tribunals can. and frequently do. pull aside the head covering. They can. and frequently do. draw off the grade. They look to see what truly lies behind” – Lord Denning in Littlewoods Mail Order Stores v Inland gross Commissioners [ 1969 ] 3 All ER 422.
“Law is order. and good jurisprudence is good order” – Aristotle 343 BC Incorporation is the act of a concern accomplishing a separate corporate personality from that of its proprietors. When a company is a separate legal individuality to its proprietors it is said to be ‘incorporated’ The essay will discourse the jobs that may originate with instances related to the business’ corporate personality and how its non ever the most simple of instances when seeking to follow the philosophy laid down in Salomon v Salomon & A ; Co Ltd [ 1897 ] AC 22. This is a instance which set a case in point for the construct of corporate personality and high spots the issues that are faced during the test of such instances. In contrast to this instance is another good known instance. Littlewoods Mail Order Stores v Inland Revenue Commissioners [ 1969 ] 3 All ER 422.
This instance shows the contradictory outcomes that can happen when the tribunals. ‘draw aside the veil’ . which is a affair of importance mentioned by Lord Denning. The instance represented the value of separating ownership so as to determine blameworthiness. The essay will cover the instances mentioned. every bit good as mentioning other instances which have been effected by the philosophy. It will foreground the importance of incorporation and corporate personality of companies by explicating the issues that have arisen for the legal governments involved in the instances and take a more in depth expression at two of the more good known 1s. This will give a full and valuable penetration into a specific country of concern jurisprudence by specifying. discoursing and measuring all of the legal issues antecedently mentioned with systematically prosecuting and relevant information.
Incorporation and Corporate Personality
Incorporation is the act of a company deriving a separate individuality to its proprietors. besides known as a corporate personality. This means that any duties and rights for the company are a separate entity wholly. The assets and debts that the company may keep belong entirely to the company. and the proprietors can non be held lawfully responsible. This so means that the company can buy assets under the company name and Sue and be sued. The ‘veil of incorporation’ is the definition given to the limited liabilities that are achieved by the proprietors of the company one time it additions a corporate personality. In the 100 old ages since the Salomon v Salomon & A ; Co Ltd [ 1897 ] AC 22 instance. the legislative assembly and the tribunals have non been incognizant of the possibilities of maltreatment. and on juncture. hold responded in assorted ways to take the advantages from the proprietors of organizing a company or of concealing behind one. These occasions are by and large described as ‘lifting the veil’ . ( Goulding. 1999. P. 66 )
Salomon v Salomon & A ; Co Ltd [ 1897 ] AC 22
Salomon v Salomon & A ; Co Ltd [ 1897 ] AC 22 is a celebrated instance which defined the manner corporate personality is looked at today. It is the first illustration of the jobs that arise from specifying the legal personality of a company. The instance involved Mr A. Salomon who owned a company which manufactured boots. He and the six members of his household all had one portion each. He so transferred his concern to the company. which ‘paid’ him by publishing him a farther 20. 000 portions plus secured unsecured bonds for a farther ?10. 000. This lawfully made him a secured creditor for the company. every bit good as its chief stockholder. The company became insolvent. Salomon’s portions became worthless. but he himself was non apt for the company’s debts as he and the company were separate individuals. and the debts were the company’s. non his. Furthermore. his secured unsecured bonds entitled him to some of the company’s staying assets even though trade creditors remained unpaid. ( Marsh. Soulsby. 2002. P. 232 )
The rules found in the Salomon v Salomon & A ; Co Ltd [ 1897 ] AC 22 are similar to the Lee v Lee’s Air Farming Ltd [ 1961 ] AC 12 instance. This shows the effects that the philosophy has had on future instances since 1897. Lee formed a company for the intent of aerial harvest crop-dusting of which he was both the controlling stockholder and regulating manager. After Lee died in 1956 during work. his widow was entitled to compensation. This was due to the fact that the company had been incorporated. hence Lee was a separate legal entity to that of his company. The company’s corporate personality meant that Lee was classed as an employee. every bit good as his other functions. ( Rush. Otley. 2006. P. 199 ) The instance of Salomon v Salomon & A ; Co Ltd [ 1897 ] AC 22 has had an consequence on a big figure of instances since 1897. assisting proprietors avoid costs by deriving a corporate personality for their concern. therefore distancing themselves from any debts and jobs that may originate.
Littlewoods Mail Order Stores v Inland gross Commissioners [ 1969 ] 3 All ER 422
Lord Denning provinces. “The tribunals can. and frequently do. pull aside the head covering. ” The ‘corporate veil’ refers to the separation of legal individuality between parent houses and their subordinates. Fearing that such liability protection would ease illicit activity. early 20th century tribunals would sometimes ‘pierce’ the corporate head covering. ( Tweedale. Flynn. 2007 ) A good known illustration of that is the Littlewoods Mail Order Stores v Inland gross Commissioners [ 1969 ] 3 All ER 422 instance. Littlewoods and its landlords. the Oddfellows. entered into an agreement for a entirely owned subordinate of Littlewoods called Fork Manufacturing Co. Ltd to get the freehold of the edifice in such a manner that the purchase monetary value could be treated. for revenue enhancement intents. as an operating disbursal. Fork so bought the freehold from the Oddfellows. paying for it by delegating the rental to the Oddfellows. The issue was whether Littlewoods could subtract the increased component of the rent in calculating its nonexempt net incomes. The tribunal held that Fork was non a separate and independent entity. the excess rent was to enable Littlewoods to get freehold. and so the rent was non deductible. ( Hicks. Goo. 2008. P. 106 )
Other illustrations of ‘lifting the head covering of incorporation’ are reasonably common with concerns. Sometimes. the tribunals themselves have taken the enterprise. Cases of how a company can make this are when the company is set up as a ‘cloak’ or a ‘sham’ with the dishonest intent of hedging the promoter/shareholder’s bing duties. In Jones v Lipman [ 1962 ] . Lipman contracted to sell land to Jones. but so changed his head. He set up a company to which he sold the land. He knew that he would be apt to Jones for amendss. but he hoped that ‘his’ company. as a separate individual would be able to maintain the land. The tribunal ordered both him and the company to reassign the land as originally agreed. ( Marsh. Soulsby. 2002. P. 233 )
Where revenue enhancement fraud is alleged. . affecting condemnable behavior. the tribunals have sometimes refused to let companies to be used to mask or belie the true facts. In Re H [ 1996 ] . two companies in which the suspects owned all of the portions were used for the deceitful equivocation of excise responsibility. The ‘veil’ was lifted by the tribunal. and belongings owned by the companies was treated as owned by the suspects themselves. ( Marsh. Soulsby. 2002. P. 233 ) ‘Groups’ with assorted keeping and subordinate companies have given rise to peculiar troubles. As a general regulation. the tribunals have treated each company in the group as separate: one company is non apt for another’s debts. ( Marsh. Soulsby. 2002. P. 233 ) In wartime or other national exigencies where countenances are imposed. the tribunals have sometimes raised the ‘veil’ and looked at the stockholders to uncover the company’s nationality. ( Marsh. Soulsby. 2002. P. 233 )
There are two types of tribunal construction in the English legal system. One construction deals with mainly condemnable instances and one construction deals with civil instances. About all condemnable instances are dealt with by the magistrates’ tribunal. go forthing merely a few of the more serious to be dealt with by the Crown Court. Most civil instances are dealt with by the county tribunal and by assorted administrative courts which have been superimposed on the general tribunal system. go forthing merely a little minority to be heard by the high tribunal. ( Owens. 2001. P. 37 ) Sing the Salomon v Salomon & A ; Co Ltd [ 1897 ] AC 22 instance. there were a figure of legal governments involved. The High Court and the Court of Appeal both found against Mr Salomon. saying that the company should be treated as his agent. assumed name or legal guardian. He so appealed to the High Courts. who concluded that Mr Salomon was entitled to retrieve the value of his unsecured bond in the same mode as any secured creditor would. The House of Lords was the relevant legal organic structure to appeal to in this affair as they are the concluding domestic tribunal of entreaty. It hears entreaties from the Court of Appeal and. in certain fortunes. from the High Court. ( Owens. 2001. P. 43 )
“The jurisprudence will stand while the remainder of the universe goes on. ” – Lord Denning I feel that the result of the Salomon v Salomon & A ; Co Ltd [ 1897 ] AC 22 instance was an unjust justification. Whilst incorporation is a successfully practiced method in concern jurisprudence. the benefits that concerns gain from holding their ain corporate personality should non be received from state of affairss such as the Salomon instance. If the company failed. it is the duty of the proprietor of the company. in this instance Mr Salomon. therefore he should be held entirely responsible for the effects of this. instead than the stockholders who have small input to be disadvantaged. A instance such as Lee v Lee’s Air Farming Ltd [ 1961 ] AC 12 is a successful and valid justification of handling the company as a separate legal individuality in my sentiment.
This is more of a moral affair every bit good as a legal instance. such that the decease of Lee was an accident and non related to his carelessness or errors made as a concern proprietor. The tribunals frequently do a just occupation at ‘lifting the veil’ such as in the Littlewoods Mail Order Stores v Inland gross Commissioners [ 1969 ] 3 All ER 422 instance where it is clear that the company is merely seeking to profit themselves by happening legal loopholes in the pattern of incorporation to profit themselves financially. As said by Thomas Fuller [ 1732 ] . “Where there are many Torahs. there are many outrageousnesss. ” Equally long as there are Torahs in topographic point. there will be people seeking to happen their manner around the maxims they impose. Therefore the legal governments will hold to be continuously argus-eyed with their ‘lifting of the veil’ throughout clip.
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