Veil of Incorporation

First it is important to understand what is meant by the veil of incorporation. The veil was the resulting product from the case of Salomon v Salomon. It represents the divide between the members of the company and the company itself, existing on its own with a separate legal personality, giving its members the benefit of limited liability. This is where they are only liable up to the amount which they have invested into the company. hat is !nown as lifting or piercing the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. In the case of "dams v #ape, the issue here was surrounding whether or not this same veil could be lifted between a subsidiary company and the company from which it derived, #ape. $ustice Scott refused to allow the veil to be lifted on the %nglish parent company whose "merican subsidiary had been successfully sued by "merican litigants but which had insufficient assets to satisfy the &udgement. 'ord $ustice Slade added with regards to the position of subsidiary companies that though in one sense (they are) the creatures of their parent companies, (they) will nevertheless, under the general law, fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities. The case went on to explain that the only true veil piercing may ta!e place when a company is set up for fraudulent purposes, or when it is established to avoid an existing obligation. To clarify, the courts have demonstrated that the veil will not be pierced where, despite the presence of wrongdoing, the impropriety was not lin!ed to the use of the corporate structure as a device or fa*ade to conceal or avoid liability, nor will the courts pierce the veil merely because the interests of &ustice so re+uires.

This case clearly highlights that the courts have to accept that even thought the principle of separate legal entity may cause in&ustice, unless the ,arliament in its "ct provides so, the court should not intervene. I believe that this idea highlights the suggestion that limited liability is not an indefeasible right, but rather a privilege a company is accorded which might be withdrawn in case of alleged abuse, and that is something members of a company, or a parent company for that matter, should bear in mind during the day-to-day running and decision ma!ing of a business. . mins approx

Basic Facts of Adams v Cape

" subsidiary company of #ape sold asbestos to a third party The .rd party ma!e a claim against the subsidiary company due to staff illness The subsidiary company had subse+uently li+uidated so the third party loo!ed to #ape /ue to #ape not being present 0as will later be discussed,1 %nglish law applied Subsidiary company was regarded as its own single economic unit 0again, discussed shortly1 2esulting in failure to lift the veil of incorporation #ape were not held to be liable 3 min max