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COMMLAW 7012 Business And Corporations Law
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COMMLAW 7012 Business And Corporations Law
0 Download5 Pages / 1,193 Words
Course Code: COMMLAW 7012
University: The University Of Adelaide
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Country: Australia
Questions:
• Explain the Salomon v A Salomon And Co Ltd [1897] AC 22 case. How is this case embedded in the statue?• Discuss the legal basis of the statement using a corporate entity as an example• Explain the future of the legal principle detailed in Salomon’s case and whether you think changes are necessary in the current law
Answer:
Salomon v Salomon is a landmark case that revolves around one Mr. Salomon who is a business person that incorporated kind of business. Given the statutory requirement provided for in the Companies Act of 1862 that demands that such a business must be commenced with at least 7 shareholders, Salomon the members of his family to be business partners using a single share to each one of them. The corporation was bought at the cost of £39,000. Mr. Salomon had to the tune of 20,000 shares and given the fact that a total sum of £10,000 had not been paid for, he was paid the remaining amount of money using debentures while at the same time granting a floating charge on the assets of the company as part of the payment. Just after the business had been registered or incorporated, the industry which was involved in shoemaking experienced numerous industrial actions basically strikes something that made the government to make a decision to the effect that it had to split contracts with numerous other companies with the sole purpose of diversifying and minimizing the risk of its limited number of suppliers due to the strikes that were ongoing.
Since the company needed more money for it to be able to function properly, it borrowed Broderip £5,000. Salomon then assigned his debentures to Broderip which he also secured by a floating charge. In the final analysis, the business collapsed and Broderip filed a claim purposely to have the security enforced. At this time, the organization was deeply indebted to many other unsecured creditors. A suit against the appellant was brought forth by the liquidator of the corporation and the court declared that the claim brought by Broderip was valid on the basis that the signatories were mere dummies to the extent that Mr. Salomon was only but acting as an agent of the corporation (Tan et al. 2018). As such, the business was entitled to indemnity from Mr. Salomon who was, in this case, the principal. This solution or rather the decision by the court led to the creation of the principle of the corporate veil between businesses or rather a company and its controllers or owners. This landmark case is deeply embedded in the statute to the extent that it drew a line between the company and its owners to the extent that there was no way through which a person in charge of the company could be liable for the debts or rather liabilities of the business by any reason (Yadav, 2017). This reaffirmed the fact that a company is a legal entity with the power to sue and be sued as well. This is deeply embedded in the statute or rather the Companies Act 1892 which also provides to the effect that companies should be treated as autonomous entities since if the courts get into the business of attaching the property of the individual owners to the debts or liabilities of the company then this kind of can create a window for many of such cases where people will lose their property even to unjust courses (Spiro, 2018). It was thus prudent for the courts to make sure that through Salomon’s case, the doctrine of corporate veil is firmly established to protect the individual company owners from having their assets confiscated.
It thus suffices to argue that the legal dogma of corporate veil was established for the purpose of making it clear that a company has a distinct legal personality that is independent and separate from shareholders’ identity by all standards (Hossain, 2018). As such, any obligations, rights or liabilities of any company are different or rather discrete from those of its owners or shareholders where the owners of the business are responsible only to the extent of their own limited liability or capital contributions. Such a principle was formulated by the courts to enable people to be able to pursue an economic objective as a singular unit without being exposed to the risk or danger of liabilities in their individual or personal capacity (Allan and Griffin, 2018). At the same time, a company can be in ownership of property, raise debts, implement contracts, invest and assume its rights and obligations independently from its members by all standards. at the same time under this particular principle of the corporate veil, companies can both sue and be sued in their own name since it facilitates a legal course as well. What is the however very much surprising about this dogma of corporate veil is that the company or business survives the very death of its owners or members?
In the final analysis, the future of this legal principle of corporate veil as established in Salomon’s case is likely to be to the effect that there will be changes that will have to be made to the current law as it is so as to make sure that the perpetrators of the acts that led to the loss of money by the company will be brought to book. This is based on the fact that for a very long time, people are using this principle to perpetuate corruption in their companies all in the name that their personal property will not be touched (Ylönen and Teivainen, 2018). At the same time, they use the company’s resources to acquire their personal belongings knowing very well that they cannot be attached to the liabilities of the company. This will mean that in future, the law be changed so as to be able to have the individual owners or rather the shareholders who were involved in activities that made the company financially unstable be able to pay for their deeds by having their property attached or even sold to repay the debts to the creditors that they owe (Dahal, 2018). This approach will be of great essence since with the current law as it is constituted, it is obvious that the creditors of the various companies are the ones who are suffering as they cannot be able to pursue the debts owed to them further even in circumstances where it is obvious that the company in question cannot pay.
References
Allan, G. and Griffin, S., 2018. Corporate personality: utilizing trust law to invoke the application of the concealment principle. Legal Studies, 38(1), pp.79-102.
Dahal, R., 2018. Salomon v Salomon: Its Impact on Modern Laws on Corporations.
Hossain, M.S., 2018. An analysis of the supply chain principle for the UK’s overseas companies: The practice of tort law under international corporate law. International Journal of Law and Management, 60(2), pp.470-477.
Spiro, P.S., 2018. Reverse-Piercing of the Corporate Veil in Canada. Forthcoming, Canadian Business Law Journal.
Tan, C.H., Wang, J. and Hofmann, C., 2018. Piercing the Corporate Veil: Historical, Theoretical and Comparative Perspectives.
Vastardis, A.Y. and Chambers, R., 2018. Overcoming the Corporate Veil Challenge: Could Investment Law Inspire the Proposed Business and Human Rights Treaty?. International & Comparative Law Quarterly, 67(2), pp.389-423.
Yadav, P., 2017. Lifting of Corporate Veil.
Ylönen, M. and Teivainen, T., 2018. Politics of intra-firm trade: Corporate price planning and the double role of the arm’s length principle. New Political Economy, 23(4), pp.441-457.
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