Veil Of Incorporation Case Study

Q1.

Introduction:

For a company there must at least two members. In the respect of corporation, there is a separate legal entity existence. A corporation is not simply be an agent or trustee for its members and we can say that member and corporation is separate to each other. For example, an corporation own right or property which is separate to its member as the asset or the right are belong to the corporation and its not belong to members. The case that can establish the separate legal entity of a company which is Salomon v Salomon Co Ltd [1897] AC 22

Content:

Salomon v Salomon Co Ltd [1897] AC 22 case stated that a company as a person own right, separate and distinct from those individual who its members. The doctrine of separate legal

Veil of incorporation(VOI) mean shareholder and officer are not liable or responsible for company debts or action and that is difference from concept of separate legal entity .Veil of Incorporation can cause same effect which is it can lead to undesirable consequences .Lifting the veil of incorporation depend on circumstances whether it should be ignored that a certain activity or transaction is carried out by a company and court will regard the activity or transaction as that of the shareholder of the company .The court may also look behind the company to shareholder in order to extract certain future or characteristic from them and ascribe them to the company itself .Lifting the corporate veil is a legal decision to treat right or duties of a corporation as the right or liabilities of its shareholder .Corporation is treat as a separate legal person which is solely responsible for the debt it incur and sole beneficiary of the credit it is owned .Common law countries usually uphold this principle of separate personhood ,but in exceptional situation may “pierce” or “lift” the corporation veil .For example ,where a businessman has left his job as a director and signed a contract to not complete with company he has just left for a period of time ,If he set up a company which competed with his former company ,technically it would be the company and not the person competing .But it is likely a court would say the new company just a “fraud” or some other phrase ,and would still

In matter of property & contract ,the court should surely be most hesitant to lift the veil in response to superficial consideration of “common sense” or “reality” or “fairness” .There is much wisdom in the observation of Hughes J in Canadian case Hunt v TW Johnstone Co Ltd (1976) ,where the fact were similar to those of Macaura v Northern Assurance Co (15) He said “whatever was the purpose behind the incorporation of these two companies – and no doubt relief from taxation was one of them – I can infer that it was of advantage to the prime owner .He cannot be allowed to raise the corporate shield against an assault from one quarter and lower it to get help from another ” .If the company is being used to enable a person to evade his legal obligation ,we can see under the GILFORD MOTOR CO V HORNE (1933) case .In the case ,a employee covenanted that after the termination of his employment he would not solicit his former employer customer .Soon after the termination of his employment he formed a company ,which then sent our circular to the customer of his former employer .The Court lifted the veil of incorporation ,granting an injunction which prevented both the former employee and his company from distributing the circular even though the company was not a party to the covenant .Fraud is committed ,we can see under Aspatra Sdn Bhd & Ors v BBMB(1988) case .Bank Bumiputra (BBMB) and its subsidiary Bumiputra Malaysia Finance Ltd (BMF) SUED Lorrain for an account of secret profit