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Tuesday, May 5, 2020

Business Law Corporation

Question: Write an essay on Business Law Assignment? Answer: Business Law Assignment Every individual is a legal person, but legal personality is a synthetic assemble, which might be conferred. The corporation derived from the logical expansion of the separation of legal personality from the humanity. The cluster of human being betrothed in common action jointly may try to simplify their work by gaining the status of legal personality. In the most of the capitalist countries, the limited liability company since its incorporation in 19th century plays a significant role in economic matters. However, several times because of companies limited liability, some undue hardship occurred for the creditors. Accordingly, the statutes of the countries may be equipped to recline the doctrine of the companys separate legal personality in a particular situation and shareholders make to be personally liable. The business practice, however, changed over the past century because of certain factors including globalisation and the competition. The doctrine of limited liability is not devoid of limits. The combination of limited liability and corporate personality was to produce the economic growth at the dawn of the industrial revolution. The combination of corporate personality and limited liability has the potentiality of abuse. As a result, the judiciary and Parliament limited the doctrine of separate personality in some situations. The case of Salomon v Salomon also incorporated the doctrine of lifting the corporate veil. Precedents of Salomon v Salomon The House of Lords set down the subsequent essential values of a company: Artificial Person The company means the juristic person without possessing the body of an ordinary living being. The existence of it depends upon consideration of the law. The officers, shareholders, directors and corporate managers are accountable for the management and daily business of a company. However, these individuals always symbolise the company. As, they only perform the duties, which are conferred upon them, they are within the scope of authority of the enterprise. They combine the company, and not bind themselves. Limited Liability One of the most significant rewards of trading by using a limited company is that the associates of the business are legally responsible for donating towards the payment of its debts to a limited degree. In the case of a company limited by shares, the legal responsibility of the shareholders to contribute would be measured by the minimum value of his or her shares. In this regard, we can say that once the shareholders have paid that minimum amount previously and any other premium agreed to when the shares were issued, he or she is not liable anymore to donate anything further. The formation of the company may be with unlimited liability of its associates, or the members may ensure the particular amount. In such cases, there is no limited legal responsibility of the members because of non-payment of the nominal or face value and the premium of the shares the held. The members have to pay the whole amount continually in the case of an unlimited liability company. In case the company is not able to pay the debts, its creditors may file the petition for wind up in the court. Formation of the separate legal unit is the chief benefit of incorporation. In the true scenario, individuals always carry out the business of the artificial person. In the final analysis, a few human beings are the actual recipients of the corporate rewards. Lifting the corporate veil There are chances that the corporate personality of a company can be engaged in committing frauds or improper, illegal acts. The corporate personality faade could be uninvolved to recognise the guilty person because an artificial person incapable of doing anything illicit or fraudulent. This move is called lifting the corporate veil. Usually, the courts would not obstruct and fundamentally go by the standard of a separate body as discussed in the Solomons case. However, in the meanwhile, the courts realise that there can be falsified and harmful schemes made by the associates and members of the companies. The standard of Solomons case cannot be extended to all the companies. The court may be the attention of the members of the corporate in universal, or in the public significance of identifying and punishing those persons who use the means of the corporate personality wrongly. The conditions under which the Court is lifting the corporate veil may be discussed as follows: Statutory Provisions There are express provisions of the company law that has to be followed in case of the scenario of piercing of lifting the veil of the corporate personality. Otherwise, we can say, the advantage of the limited liability and separate entity might not be permitted to enjoy in some definite circumstances. Reduction of membership In case, the number of associates are below the legislative minimum, and still the companies ensures the business away from that statutory minimum, or while the number of members is so concentrated, the court and the law can lift or pierce the corporate veil. The lifting of the corporate veil should be under the applicable law, and should formulate the persons behind that company who is personally liable for that act. Misrepresentation in prospectus If there is a misrepresentation in the catalog, every promoter, director and the other persons, who are liable for such issue of the brochure, sustains the liability towards the individuals who had borrowed the shares on the faith of that untrue statement. Misdescription of name Where any bill of exchange, order of any kind of money, or any contract is signed by an officer of the company, such officer shall be personally liable of such contracts in case the company name is not properly stated or even not stated. Fraudulent conduct In case the members of the company are in the conspiracy to wind up the company, it can be assumed that the business of the company has been continued with the intention to defraud the creditors of company. They deprived the other persons related to the company, or for any of the fraudulent purpose, such person may be held personally liable by the court for any of the liability of the company . Liability for ultra vires acts Officers, members or the directors of the enterprise personally are liable for all the acts, which they have conducted during their involvement on companys behalf if such acts are ultra vires to the policy of the company. The problem with Salomon v Salomon and the Corporate Groups The worlds condition has changed since Salomon v Salomon. Because of the economic developments in the twentieth century, there was a revolution of the business structure of the world. A set of subsidiary and the holding companies other than the single company performs the businesses nowadays. The standard of Salomon was universal to cover up the complicated situation of the transnational inter-corporate group venture. These enterprises mean the controlling major company operates its business through some subsidiary companies, even in case individual company has its entity. This principle in Salomon plays a significant role till now. However, there are some controversies with the extensions of Salomon. Firstly, the question arises about the legitimacy of the corporate groups. The corporate groups operated as one economic unit, but they are enjoying the status of separate corporate personality. It was recommended that the courts accept the application of the Corporate Personality within the corporate groups without considering the consequences. The doctrine of the separate corporate personality was made to defend the shareholders of the natural persons. The corporate assemblies created new problems regarding the challenges to the traditional orthodoxy. Secondly, the shareholders of individuals offered to be protected by holding companies or the corporate groups, but it has not been cleared that when the protection in question is lifted. It was contended that the law is not on the same pace as the progress of the commercial world. The corporate groups exploited the company rules. A classic example of exploitation of the principles of Salomon is Adams v Cape Industries Plc. There was negligence of Cape Industries Plc involved in the mining of asbestos in South Africa, which caused an asbestos infection to the claimant and others. A judgment obtained from the United States. As there is no branch of Capes in the United States, the judgment is not being enforced on the Capes. By establishing the subsidiary companies in the foreign countries, the parent companies enjoyed the profits. However, in case the subsidiary company fails, the parent company would not take any responsibility as there is an application of the strict rule of Salomon about limited liability. The modern legal situation The company trading has limited liability given by law. The principles of Salomon criticised several times, but the court has reaffirmed this once and again. There is a narrow ground of lifting the corporate veil, but the judiciary lacks uniformity and gives an inconsistent reaction. The Court might lift the corporate veil in the field of outstanding organisation and faade or sham. The courts can cut the corporate veil on the ground of sham or faade. In Gilford Motor Co v Horne, the Appeal Court has lifted the corporate veil and allow the injunction in opposition to the newly established company of the defendant and the defendant himself. The company of the respondent has the purpose of facilitating that person to conquer the terms of his restraining agreement from his previous employers. In the case of Jones v Lipman, the principle of the above mentioned case was followed. In this case, the defendant establishes a company to receive a land that the defendant was obligated to transfe r by a first agreed contract. The conclusion is that the lifting of corporate veil is possible in circumstances when the structure of corporate was abused for escaping from existing predicted liability. In Trustor AB v Smallbone and Others, there was a transfer of funds made by a managing director of the appellant company to the company prescribed by its managing director. Court entitled to lift the corporate veil. The court recognises the amount acceptance by the company as of the personality in case the individual used the company as a tool or faade to hide the facts and avoid the liability of the person. It can be said that there are no precise boundaries of the faade ground. Is the modern legal situation satisfactory? The legislations deal with a particular problem that has been arisen by the mixing of several statutes, by which the corporate groups get a various scope for exploitation of the law. In Adams, the court held that risk allocation and calculating the liability of the corporate groups is a justifiable use of group structure. Although, later it held that in the realistic perception, the sham is the actual basis of lifting the corporate veil. Corporate groups offered the current norms of the commercial reality: first is the autonomy and integrity of the corporate, set up in the standard of Salomon and the other is the public policy to protect the economically damaging or ethically abuses by the corporate groups. The test of corporate veil is unfair. The legal position of the shareholders treats equally by both types, such as natural persons and parent companies, by providing similar legal protection. As there is no clear guidance about the constitution of mere faade by the corporate groups, corporate groups can freely operate the structure as they please. Conclusion Salomons case thoroughly established that a company has a legal and independent personality separate from its member individuals, but also stated that corporate veil may be lifted. In the exceptional case, there is an ignorance of the corporate personality, and the individuals may be recognised as the whole company. Modern legislative is not able to cover the certain problems. The courts are reluctant to restrain the obvious utilisation of the principles in Salomon by the corporate groups. The current legal circumstance is not satisfactory from the point of view of policy, specifically as per the group structure of modern businesses. References Adams v Cape Industries Plc[1990] Ch 433. Armour, J. and Ringe, W.G., 2013. European Company Law 1999-2010: renaissance and crisis.Law Ukr.: Legal J., p.144. Blauberger, M. and Krmer, R.U., 2014. Europeanisation with Many Unknowns: National Company Law Reforms after Centros.West European Politics,37(4), pp.786-804. Buhmann, K., 2011. The Danish CSR Reporting Requirement: Migration of CSR-Related International Norms into Companies' Self-Reglation through Company Law?.European Company Law,8(2-3), pp.65-73. Campbell, J.C., 2015. Corporate Law, the Courts and Corporate Personality.Company and Securities Law Journal,33(4), pp.227-238. Craig, P. and De Brca, G., 2011.EU law: text, cases, and materials. Oxford University Press. Dalal, A.S., 2011. Analysis of takeover defenses and hostile takeover.COMPANY LAW JOURNAL,1(3). Deva, S., 2011. Sustainable development: what role for the company law?.International and Comparative Corporate Law Journal,8, pp.76-102. Eckardt, M. and Kerber, W., 2013. Horizontal and Vertical Regulatory Competition in EU Company Law: The Case of the European Private Company (SPE). Esser, I.M., 2011. Corporate Social Responsibility: A company law perspective.SA Mercantile Law Journal= SA Tydskrif vir Handelsreg,23(3), pp.317-335. Gilford Motor Co v Horne[1933]Ch 935. Gluck, A.R., 2011. Intrastatutory Federalism and Statutory Interpretation: State Implementation of Federal Law in Health Reform and Beyond.The Yale Law Journal, pp.534-622. Guo, F. and Anan, L., 2012. Investors' Revolution, Shareholders' Activism and the Structural Change of Company Law [J].Science of Law (Journal of Northwest University of Political Science and Law),2, p.017. Hao, X.U., 2013. On the Relation between Transfer of Shares and Obtaining Shareholder Status in Company LawReview on Judgment No. 0011 Civil Final Decision of2009 in Anhui Province.Northern Legal Science,2, p.009. Shum, P.K. and Yam, S.L., 2011. Ethics and law: Guiding the invisible hand to correct corporate social responsibility externalities.Journal of business ethics,98(4), pp.549-571. Trustor AB v Smallbone and Others[2001]EWHC 703 (Ch). Armour, J. and Ringe, W.G., 2013. European Company Law 1999-2010: renaissance and crisis.Law Ukr.: Legal J., p.144. Blauberger, M. and Krmer, R.U., 2014. Europeanisation with Many Unknowns: National Company Law Reforms after Centros.West European Politics,37(4), pp.786-804. Buhmann, K., 2011. The Danish CSR Reporting Requirement: Migration of CSR-Related International Norms into Companies' Self-Reglation through Company Law?.European Company Law,8(2-3), pp.65-73. Campbell, J.C., 2015. Corporate Law, the Courts and Corporate Personality.Company and Securities Law Journal,33(4), pp.227-238. Craig, P. and De Brca, G., 2011.EU law: text, cases, and materials. Oxford University Press. Eckardt, M. and Kerber, W., 2013. Horizontal and Vertical Regulatory Competition in EU Company Law: The Case of the European Private Company (SPE). Gluck, A.R., 2011. Intrastatutory Federalism and Statutory Interpretation: State Implementation of Federal Law in Health Reform and Beyond.The Yale Law Journal, pp.534-622. Esser, I.M., 2011. Corporate Social Responsibility: A company law perspective.SA Mercantile Law Journal= SA Tydskrif vir Handelsreg,23(3), pp.317-335. Dalal, A.S., 2011. Analysis of takeover defenses and hostile takeover.COMPANY LAW JOURNAL,1(3). Guo, F. and Anan, L., 2012. Investors' Revolution, Shareholders' Activism and the Structural Change of Company Law [J].Science of Law (Journal of Northwest University of Political Science and Law),2, p.017. Hao, X.U., 2013. On the Relation between Transfer of Shares and Obtaining Shareholder Status in Company LawReview on Judgment No. 0011 Civil Final Decision of2009 in Anhui Province.Northern Legal Science,2, p.009. Adams v Cape Industries Plc[1990] Ch 433. Campbell, J.C., 2015. Corporate Law, the Courts and Corporate Personality.Company and Securities Law Journal,33(4), pp.227-238. Jones v Lipman [1962] 1 WLR 832 Trustor AB v Smallbone and Others[2001]EWHC 703 (Ch). Shum, P.K. and Yam, S.L., 2011. Ethics and law: Guiding the invisible hand to correct corporate social responsibility externalities.Journal of business ethics,98(4), pp.549-571.

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