In the Rossendale case, the Court of Appeal considered an appeal against the High Court`s decision that it is possible to penetrate the corporate veil of special purpose vehicles (SPVs), in which case it is the creation of laws to be created to maintain the personality of the company. And according to the law, a company is an artificial person created by the personification of a group of individuals. Corporate personality theory mainly states that a company has a different legal identity than its member. English and Indian laws follow the concept of corporate personality. In order to be treated as that of a single person and therefore to be available in a particular lawsuit against that person, it would be necessary to “penetrate the corporate veil” (also known as “lifting the corporate veil” or “looking behind the corporate veil”). The principle of circumvention – “If there is a legal right against the person who has control. and the company is an intermediary. Solomon is the main case with respect to a separate personality and asserts that once a company is legally established, it becomes a legal entity with its own rights and responsibilities distinct from those of its members. One of the arguments against Mr Salomon was that he had fraudulently formed the company “contrary to the true and deliberate meaning” of the Companies Act, so he should be held liable for all his debts. However, the House of Lords rejected this and reiterated that the policy of the act is to allow people to set up businesses to avoid any additional personal liability.[3] Lord Herschell rejected another proposed argument concerning the agency and held that a company was not a representative of its members, so that shareholders could not be obliged to compensate the company`s debts.[4] Lord Macnaghten also noted that even if a company is the same after its creation, “the same people are managers and the same hands receive the profits”[5], the company is not an agent of the underwriters, whether or not it has spent most of its capital on one person.[6] He later explained that piercing the corporate veil “is permitted in a small residual category of cases where the misuse of the corporate veil to circumvent or obscure the law can only be dealt with in defiance of the legal personality of the company.” For more information, see commentary: Piercing the veil: Gore-Browne on business [1].
The main verdict in the Prest case was delivered by Lord Sumption, who concluded in [27]: “The consensus that there are circumstances in which the court can penetrate the corporate veil is impressive. I believe that the recognition of a limited authority to penetrate the corporate veil in carefully defined circumstances is necessary if we do not want to disarm the law in the face of abuse. The impact of a company`s business personality has been highlighted below; A company can enter into contracts and transactions, including with its members, on the basis of a separate personality, whether it is a purchase contract (obviously in Farrar) or a proven employment contract in Lee v Lee`s Air Farming.[16] Lee`s ability to function in a dual capacity was the result of Solomon`s decision. Moreover, even after the death of all members, companies have a permanent existence (clearly in Re Noel Tedman Holdings[17]), emphasizing the principle of distinct personality. Therefore, unlike partnerships, changing ownership and trading shares will have no impact on continued existence. It should also be noted in general that many cases where the veil is broken do not go so far as to remove the status of distinct personality of the society, but simply examine who the members are to determine a particular status or classification of the society (sometimes called “looking behind the corporate veil”). Even then, the courts were reluctant to conduct such investigations unless required to do so by law. The clearest example of the legally required corporate veil is the requirement to prepare consolidated financial statements (Companies Act 2006 (CA 2006), s. 399) and related definitions of subsidiaries (CA 2006, arts 1161 and 1162). Other provisions of the CA 2006 require a determination of whether an entity is a subsidiary of another entity (CA 2006, ss. 1159 and 1160), such as the need for members to consent to the operations of directors (CA 2006, s.
192) and what constitutes financial support to public enterprises (CA 2006, s. 679). Legal personality is the fact that a company is recognized as a legal entity distinct from its members. A company with such personality is a legal existence independent of its shareholders, directors, officers and authors. This is called the veil of incorporation. The question that arises is: how then does a company acquire this legal personality? Except in cases involving the wording of certain laws or treaties, the Court is not free to disregard the Solomon Principle v. To Salomon & Co Ltd simply because it considers that justice requires it. Our law, for better or worse, recognizes the formation of subsidiaries that, while somehow the creatures of their parent companies, are treated at common law as separate legal entities with all the rights and responsibilities that would normally be associated with separate legal entities. Natural persons are allowed to set up companies to separate their professional and personal affairs,[7] thus avoiding any other personal liability mentioned in Solomon. This advantageous limited liability means that the shareholders are separate persons from the company.
The liability of members is limited to the amount of their fully paid-up share[8] or the fixed amount to be paid by guarantee[9]. The company may neither insist on further contributions nor oblige the shareholders to settle the debts it has contracted as an independent person. In addition, the debts were not incurred in the name of the members, solomon having stated that there was no agency relationship between them. “If the memorandum is duly signed and registered, although only seven shares are taken, the subscribers are a company that is `immediately able to perform all the functions of the registered company`. These are strong words; There is no period of minority at birth, no time of incapacity. I do not understand how a company like this, which has been permitted by law, can lose its individuality by spending most of its capital on a person, whether or not they are a signatory to the memorandum. The company is legally a completely different person from the subscriber. Members (subscribers) are also not responsible… In order to fundamentally break the veil, a special corporate rule is needed instead to override the Solomon Principle.