LEGAL AND REGULATORY FRAME WORK
A company as legal entity which has separate legal identity from its members and is ordinarily incorporated to undertake commercial business. A company is defined in different forms such as:
And unlimited companies
The companies act 1985-2006 is an act which sets out the responsibilities of the companies there directors and there secretary the act only applies to companies that are incorporated under it
In the companies act 1985-2006 defines a company that has been registered under law and this act.
Once you register a company and are incorporated the company and the individual are separate bodies
The last significant development in the history of companies was the decision of the House of Lords in Salomon v. Salomon & Co. where the House of Lords confirmed the separate legal personality of the company, and that the liabilities of the company were separate and distinct from those of its owners.
A company has two separate identities such as the case below that argues that they separate in terms of the company and the individual.
Such as the case of saloman v saloman & co where the house of lords enabled solomon to not pay off the debts with his personal money which means his got limited liability in which case was a benefit such as if he had unlimited liability he would be liable for his own debt and would have to pay out from his own money.
The different forms of companies have different rights and liabilities such as a sole trader would have a different legal structure to a limited or a public limited company.
Such as a sole trader you are liable for you own debt and your business as if you fall into debt you will have to pay from you own money so basically a sole trader has got unlimited liability.
A limited liability company exist on there own right this means that the companies finances are distinct from the personal finance of there owners so if the company falls in to debt the company will be liable not the owners.
A joint stock company or a (jsc) is basically a type of business partnership where capital is formed by individuals of a group of shareholders. In return they get a receipt or a certificate of owner ship of stocks in return for contribution , the shareholders are free to transfer ownership interest at any rime by selling there stockholding to others.
In the case of Salomon v Solomon ltd where aron Salomon was a sole trader as an successful leather merchant who specialized in leather boots he ran as a sole trader for many years, by 1892 his sons became interested in taking part in the business. Salomon decided to incorporate his business as a limited company as Salomon and co ltd. In which case he wouldn’t be responsible for the debt of his company which is a benefit.
The cooperate veil or the cooperate shield is legal fact that a corporation is an entity separate and distinct from its officers and shareholders –
protects shareholders, directors and officers from liability for corporate debts in which case the people and shareholders owners will not be liable but there are exceptions and circumstances under which the cooperate veil can be lifted and the owners could be liable.
The benefits and disadvantages of this are as follows:
• You can be limited by shares which would mean that you would make less profit which is a disadvantage
• The members such as the shareholders are not liable for the debt so if a company falls into debt he or she wont be liable for the debt which is a benefit
• The company is distinct from its members which is another benefit as the members wont be liable for its debt
• Partnerships and sole traders are liable for debts which is a disadvantage for them
• A shareholder has no right of ownership over the property or assets which is a disadvantage
• Although the owner may be in charge and give task’s and jobs to others he is not regarded as the company so he isn’t liable for debt which is another benefit
The cooperate law concept of piercing the cooperate veil describes a legal decision where a shareholder of a cooperation or a company is personally responsible for the debts that the company has even though he has limited liability in which case would only happen if the courts took into consideration for the following factors :
Such as if the court finds that one of these factors might be just enough to pierce the veil in which case the shareholder or individual would be liable for debt.
Such as the case of the general motors where they were liable for the entire amount of losses that the company faced which was spread across all of the investors and shareholders.
Lifting the cooperate veil/ dislodging to cooperate veil
If the corporate veil is lifted the then the individuals if they think that the company has done fraud or injustice such as some of the following points the court might take them into account as fraud :
• Was the corporation insolvent when a debt or contractual obligation was
Incurred, A corporation is insolvent if it is unable to pay debts as they come due in this can also be the case if theve got more liabilities then assets
• Diversion of Funds:
Have shareholders taken corporate funds and used them for
Personal purposes in terms of buying flash cars spending money on them self’s etc
• Disregard of corporate Formalities
As it is important to keep formalities information and hold annual meetings to keep corporate records failure to do so might result as been giving in evidence in court of a lack of difference between the company and the owner
The main way the veil can be pierced is if a court finds the five factors that creditors have been defrauded or the company has committed fraud or injustice against creditors that’s the only way the veil would be lifted and the company would be liable for the counts that the court decide such as outstanding debts etc.
I found out that the courts have different ways of dealing with companies in terms of there legal structure in terms of being a sole trader or a limited as circumstances change so do business such as you could be apart of a business one minute the next minute you could be to separate people such as there you and the company. If you are a limited company you aren’t liable unless in some circumstances in which case the court decides how the ruling goes. The cooperate veil is a good thing as it protects the shareholders and individuals unless the courts decide to lift the veil in which case the individuals are held responsible for the debts the company has.
LEGAL AND REGULATORY FRAME WORK