Revisiting Corporate Personality Notes

Company Law Section 6: Revisiting Corporate Personality: Lifting the Corporate Veil: Defining feature of a company is that it is legally distinct from the shareholders. When can we lift the veil? Salomon v Salomon: - Established distinct legal personality of the company. Motive for establishing company and economic considerations are irrelevant. - Did recognise "sham" companies (not validly created) that could be ignored. Through the statutory duties, directors may become personally liable to creditors (practically overridden by the common use of personal guarantees). 1. Human shareholder of a specific company want to lift the veil to impose liability on shareholders. 2. Corporate shareholders - fully owned subsidiaries want to lift the veil to impose liability on parent company. Judicial Lifting: When the corporate form is a 'sham' or 'facade' Gilford Motor Co. v Horne: - Not a typical lifting the veil situation. - Involved a restraint of trade clause, individual tried to get around it by establishing a company and getting the company to trade. - Horne was the manager of Gilford, and after he left, he was not to solicit any of the company's clients. - Mr Horne created JN Horne Ltd. the directors his wife, an employee, and the shareholders were his wife and solicitor. CA held JM Horne could be ignored, the company was a mere cloak or sham, and its sole purpose was enabling Mr Horne to get around the restraint of trade clause. Salomon not even considered. Jones v Lipman: - Defendant entered into contract to sell land, but then changed his mind - Established a company, transferred the land to it, and argued the contract couldn't be specifically perfomed anymore because he no longer owned the land. Court applied Gilford, said the company was a sham, a "creature" of the defendant, a device, sham, mask. Agency Theory: Not really an exception to corporate personality. The company can act as an agent of another, the principal will become liable for authorised acts, and may become vicariously responsible for wrongdoing. Smith, Stone and Knight: - Company a principal, had established a subsidiary company - The company purchased a business, and then set up a subsidiary, and transferred the business to it.

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