Law And Order Episode Guide - cut off Legal Personality of a business
Good evening. Today, I learned about Law And Order Episode Guide - cut off Legal Personality of a business. Which is very helpful to me and you. cut off Legal Personality of a businessIn Gilbert and Sullivan's 'Utopia', the thought of a limited business is described, rather poetically:
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"Some seven men form an connection (If possible, all Peers and Baronets), The start off with a social announcement To what extent they mean to pay their debts. That's called their Capital; if they are wary They will not quote it at a sum immense. The figure's immaterial--it may vary From eighteen million down to eighteenpence. I should put it rather low; The good sense of doing so Will be evident at once to any debtor. When it's left to you to say What number you mean to pay, Why, the lower you can put it at, the better......
They then trek, to trade with all who'll trust 'em Quite irrespective of their capital (It's shady, but it's sanctified by custom); Bank, Railway, Loan, or Panama Canal. You can't embark on trading too tremendous-- It's strictly fair, and based on coarse sense-- If you succeed, your profits are stupendous-- And if you fail, pop goes your eighteenpence".
How does the thought of isolate legal personality and limited liability give rise to the circumstances Gilbert and Sullivan describe? Does you think that the law goes far enough in disregarding, or avoiding the consequences of, isolate legal personality, when justice requires it to do so? This record explains further.
An incorporated company, "united or combined into an organised body", is recognised by law as a isolate legal entity, or 'legal person' inescapable from the isolate personalities of the members of the body. The law treats it like "any other independent person" having proprietary and liabilities. A company, as a legal person, may enter into contracts, own property and even commit crimes. It is this thought of the business being a fictitious person (then under the 'Stock business Act' ) 'Utopia' ridicules, where Gilbert, in his libretto, toys with the idea that there could be a convergence of natural persons and legal entities.
Where a secret business limited by shares owes money, and becomes insolvent, the law holds that since its creditors dealt with the business - not its individual members - regardless of "the ideas or schemes of those who brought it into existence", the extent of financial liability of its members is limited to the number the members agree to pay for their shares: their "public declaration.. To what extent they mean to pay their debts". Gilbert's words satirize the consequences of this: if the business becomes insolvent, the creditors do not get paid, regardless of the personal financial situations of its members. This can be contrasted with a partnership or sole proprietorship, where the owner would be held responsible for all debts of the corporation.
Conversely, where a business owns assets, those assets belong to the Company, not its members: in discrepancy with a partnership or sole proprietorship, where the owner(s) of the assets are the partners or the proprietor. Members cannot claim an interest as the assets were purchased by the Company, as legal owner which, as in Macaura can be to the detriment of the member.
On occasions, the law is ready to circumvent the usual consequences of legal personality by 'lifting' or 'piercing' the veil of incorporation - for example, where a company's shareholders are using the business as a gadget to avoid their responsibilities. In Jones v Lipman, Lipman transferred a property to his company, to avoid having to transfer the property to Jones. The Court held the business was a "device and a sham, a mask which [Lipman] holds before his face in an attempt to avoid recognition by the eye of equity".
This does not mean that the Courts will all the time lift the corporate veil wherever justice requires it. The Courts have vigorously fought against any attempt to allow anyone, let alone themselves, "peer under the skirts of a company". In Adams v Cape Industries, a business that marketed asbestos set up subsidiaries so that if a customer sued for asbestos-related claims, only the subsidiary would be liable. The bankruptcy of a subsidiary would not sway Cape. The Court held that Cape were entitled to "organise affairs.. So that it would have the... Advantage of the group's asbestos trade in the Usa without the risks of tortuous liability".
Similarly, in Ord and an additional one v Belhaven Pubs limited a defendant business that was not trading, transferred all of its assets to other clubs in its group, and consequently claimants attempted to sue those other clubs for the debt the defendant owed. The court dismissed the claim, stating that the transactions were overt and "conducted in accordance with the liberties conferred upon corporate entities by the clubs Act".
In modern times, the coming would seem to be that the Court will go to any length to avoid any inescapable penetration of the corporate veil. In Allen v Amalgamated construction Co Ltd the European Court of Justice examined the workings of a business to study either transfers between subsidiaries were capable of being a transfer under the Tupe regulations. Similarly, in Pirelli Cable holding Nv v Irc the Court, whilst denying that it was lifting the veil, "availed itself of a jolly good rummage colse to the internal workings" in order to seek inescapable facts.
The Courts have on occasion held directors personally liable for their actions. In C Evans & Sons limited v Spritebrand Ltd, the Court held that, in every case it is essential to seek with care what part the director played personally with regards to the act complained of. The Court declined the occasion to formulate a wide definition of circumstances that would all the time give rise to liability.
More recently, in Mca Records Inc, whilst not setting out normal principles, the Court held that per Cbs Songs Ltd and Unilever plc v Gilette (Uk) Ltd, liability may arise where the individual 'intends and procures and shares a coarse form that an infringement takes place'. Consequently, these cases form that directors can sometimes be personally liable for torts for which the business is also liable. Still, the Courts have retained the principles of isolate legal personality and limited liability, and defended the protection they offer. Whilst permitting some 'rummaging' under the veil to form facts, they have severely limited any encroachment on those principles.
We have seen how the principles of isolate legal personality and limited liability sometimes supervene in circumstances that may seem favourable to the Company's shareholders and detrimental to its creditors. On one hand, there are good reasons for retaining these principles. The Courts feel that to subject individual shareholders or directors to onerous personal liabilities would discourage industrial enterprise. Additionally, whilst creditors are exposed to risk, they are fully aware of this risk: the Company's Memorandum, a social document, freely states that the business is limited by shares, the liability of its members is limited, and by how much. So when the business "proceed[s] to trade with all who'll trust 'em", the risk creditors take is undoubtedly calculable.
On the other hand, there are cases where, if it were not for business law, other principles would want the Courts find individual members liable for their debts and actions. Cases such as Adams v Cape Industries, where members have deliberately arranged their affairs to avoid liability if sued, are difficult to correlate with equitable principles of justice. The law is entertaining towards introducing provisions to preclude members abusing the principles to avoid liability for serious crimes and should go further to introduce provisions preventing the avoidance of liability for serious losses.
Materials referred to:
Payne, J, Ma (1998) Lifting the Corporate Veil, business Law Gilbert, W S - Utopia, limited Halsbury's Laws of England from LexisNexis - Corporations (Volume 9(2) (2006 Reissue) Halsbury's Laws of England from LexisNexis - clubs (Volume 7(1) (2004 Reissue) Hill, C, Hubble, P, Longshaw, A, Morgan, T & Roberts, S (2007) W223 business Law and Practice, Oxford University Press, Oxford New Law Journal from LexisNexis - von Wachter, V (13 July 2007) The Corporate Veil, 157 Nlj 990 New Law Journal from LexisNexis - Pedley, P (6 May 2005) Hints for hungry litigators, 155 Nlj 702
Cases:
Adams v Cape Industries (1990) Ch 433
Allen v Amalgamated construction Co Ltd: C-234/98 [1999] Ecr I-8643, [2000] All Er (Ec) 97
Jones v Lipman (1962) 1 All Er 442
Macaura v Northern insurance Co Ltd (1925) Ac 619 Ord and an additional one v Belhaven Pubs limited (1998) Bcc 607
Salomon v A Salmon and Co Ltd (1897) Ac 22 [1895-99] All Er Rep 33
