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Create a 9 page essay paper that discusses What is meant by piercing the veil of incorporation Using examples from the case law, consider critically some of the different reasons why it might be thoug
Create a 9 page essay paper that discusses What is meant by piercing the veil of incorporation Using examples from the case law, consider critically some of the different reasons why it might be thought appropriate to pierce the veil. Explain why the doctrine has been controversial and cons.
lanation of the concept of the “veil of incorporation” is the case of Salomon1 in which Aron Salomon transferred his business into a limited company in which six other members of his family subscribed to the company memorandum2. The purchase price of the shares of the new company was £38,782 and Salomon took 20,000 shares whilst his six other family members took one share each.
Salomon took Debentures (loan stock) of £10,000 and £8,877 cash which ware paid to Salomon on the balance of the purchase price. The business floundered and was wound up with liabilities in excess of its assets by £7,7333. The companys liquidator claimed that the companys business was still Solomons because the company was a “sham”. Thus, in the preliminary court hearing, the liquidator won and was given the right to sue for Salomon to pay for the loss.
The Court of Appeal also held in favour of the liquidator. The Court of Appeal state that based on the Companies Act, they had to hold Salomon liable because he was “one substantial person running the business with six mere dummies”4. However, the matter was presented to the House of Lords who reversed the decision of the court of first instance and the court of appeal. They ruled in favour of Salomon and stated that one share is enough to render an organisation a corporate entity and hence, the veil of incorporation could be applied to such an entity to prevent the liability of the entity to spread to the owners. Therefore, this creates a fundamental doctrine in English law that holds the right to the separation of business resources from owners resources sacred.
“Limited Liability, introduced in 1855 to allow people to trade without committing their personal fortune to a venture requires in time, legislative balance. The limited company is in danger of being too wide a protection for free enterprises and of providing a veil for the unscrupulous”5. This statement indicates that there is the need for a balance to be
