English Company Law - The current approach under : Prest v. Petrodel Resources Ltd ( Piercing the Corporate Veil)
English Company Law - The current approach under : Prest v. Petrodel Resources Ltd ( Piercing the Corporate Veil)
The Court of Appeal's ruling in Adams v Cape Industries plc shows that courts are not quick to dismiss corporate personality, and that the number of grounds on which corporate personality may be dismissed was limited. The Supreme Court ruling of Petrodel Resources Ltd v Prest  has further curtailed this by holding that a company's corporate personality can only be discarded in one circumstance, and even then, it will only be disregarded if it is absolutely essential. Prest must now be considered the most important instance in this area.
Prest v Petrodel Resources Ltd  UKSC 34 Facts: The case included Mr. and Mrs. Prest's divorce settlement Mrs Prest received a £17.5 million divorce settlement from the High Court, although much of Mr Prest's wealth was tied up in companies that he entirely controlled. The Matrimonial Causes Act 1973, Section 24(1)(a), gives courts the authority to "direct that a party to the marriage shall transfer to the other party... property to which the first stated party is entitled." The High Court used this authority to pierce these companies' corporate veils and order that the relevant properties be handed to Mrs Prest.Mr Prest filed an appeal, arguing that the Court had no authority to do so because the properties did not belong to Mr Prest, but to his companies. In accepting Mr Prest's appeal, the Court of Appeal found that the veil could not be pierced in these circumstances, and that the High Court lacked power to make the order under § 24(1). (a). Mrs Prest filed an appeal. The appeal was unanimously granted, but not on the grounds that the companies' corporate personalities should be disregarded. The Supreme Court ruled that the properties were held in trust for Mr Prest by the companies and hence could be included in the divorce settlement. More importantly for the purposes of this case, the Court unanimously refused to disregard the companies' corporate personalities, stating that corporate personality would be disregarded only in the following circumstances: "a person is under an existing legal obligation or liability, or subject to an existing legal restriction, which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control." Furthermore, in this case, a court could only dismiss corporate personality if "all other, more conventional, remedies have proven to be ineffective."
Lord Sumption's leading judgment began by defining what it means to pierce the corporate veil: To put it another way, it means ignoring the company's own personality. The law assigns a company's conduct or property to those who govern it in a variety of scenarios, despite the company's separate legal personality. For something he has done as its agent or as a joint actor, the controller may be personally accountable, in addition to the company. Property that is legally vested in a company may be beneficially owned by the controller if the property's arrangements make the company the controller's nominee or trustee for that purpose... But when we talk about piercing the corporate veil, we're not (or shouldn't be) talking about any of these scenarios; rather, we're talking about cases where a person who owns and controls a company is said to be identified with it in law by virtue of that ownership and control in certain circumstances.
As a result, it is evident that Lord Sumption does not consider many of the cases presented to be actual instances of corporate personality being ignored. Prest has redefined what it means to disregard corporate personality, and as a result, many circumstances that were previously considered to be instances of neglecting corporate personality (e.g. agency) must no longer be seen as such. This is likely most apparent in circumstances when the company is being used as a façade , where Lord Neuberger remarked that such cases frequently did not involve abandoning corporate personality. Many of these cases, according to Lord Sumption, are examples of the 'concealment principle,' which states that the interposition of a company or possibly several companies to conceal the identity of the real actors will not prevent the courts from identifying them, assuming their identity is legally relevant. The court in these cases is not looking past the 'façade,' but rather digging behind it to uncover the truths that the corporate structure is concealing. The concealment concept, according to Lords Sumption and Neuberger, is "legally banal" and "does not involve breaching the veil at all."
The 'evasion principle,' which occurs when "a person is under an existing legal obligation or liability, or subject to an existing legal restriction, which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control," is the only true instance in which the corporate personality could be disregarded. It follows from this that three conditions must be met in order for a company's corporate personality to be disregarded and liability to be imposed on a person :
it is clear that three conditions must be met in order for a company's corporate personality to be disregarded and liability imposed on a person (X): there must be an existing legal obligation, liability, or restriction imposed on X; X must interpose a company in order to evade or frustrate the obligation, liability, or restriction in question; and the company being interposed must be under X's control.
Even when these circumstances are met, Lord Neuberger believes that many decisions that could be considered examples of the evasion principle (e.g., Gilford Motor Co Ltd v Horne, ) could have been decided without ignoring corporate personality. He also said that "there has not been a single incident in this jurisdiction when the doctrine [of the court breaching the corporate veil] has been utilized properly and successfully."
English Company Law - Under the statute, disregarding corporate personality
Because companies are given corporate identity by statute (specifically, section 16(2) of the CA 2006), it follows that statute can revoke corporate personality and hold individuals behind the veil liable.
The following are some notable examples: If a public company does business or exerts borrowing authority before receiving a trade certificate, the directors may be held personally accountable (CA 2006, s 767).
When it appears that a company was run with the intent to defraud creditors (known as fraudulent trading) during the winding up/administration process, the court may lift the veil and impose personal liability on any persons who were aware of the conduct (Insolvency Act 1986, ss 213 and 246ZA, ).
When a company enters insolvent liquidation or administration, the directors may be personally liable if they continue to trade when they knew, or should have known, that there was no reasonable prospect of the company avoiding insolvent liquidation or administration (wrongful trading) (Insolvency Act 1986, ss 214 and 246ZB)
English Company law – Corporate Personality
When a company is formed, it becomes a separate legal entity that can perform many of the same functions as a natural person. Unregistered firms could have corporate personality, but with the passage of the Joint Stock Companies Act 1844 and the option to incorporate a company through registration, corporate personality gained new significance. Despite this, it took another fifty years for the courts to recognize the fundamental significance of corporate personality in the following landmark decision.
A Salomon & Co Ltd v Salomon  (HL) Facts: Salomon worked as a sole trader in the bootmaking industry. He formed a new company and sold the bootmaking firm to it, in exchange for Salomon receiving shares and £10,000 in debentures secured by a floating charge. Salomon had 20,001 shares, and six members of his family each owned one (the Corporations Act of 1862 required companies to have at least seven members), despite the fact that they were not involved in the firm. The company went into liquidation when the business collapsed. Salomon was able to recover the £10,000 owed to him thanks to the floating charge, but there were no assets left to satisfy the company's other creditors. Salomon should be personally accountable for the company's debts, according to the liquidator, because the firm was his agent or trustee. Salomon was not personally accountable for the company's debts, according to the court. The company was not acting as Salomon's agent or trustee; it was a separate entity with whom the creditors had made a contract. As a result, its debts were not Salomon's debts, and he was entitled to the money owing to him because his debt outranked the debts of the other creditors.
Many consider Salomon to be the most important case in company law because it recognized that a company could legitimately be set up to shield its members and directors from liability; it implicitly recognized the validity of the 'one-man company' (i.e., a company run by one person with a number of dormant nominee members) nearly a century before single member companies could be formally created; and it recognized that a person can hold shares (even all the shares) in a company. Salomon is without a doubt the cornerstone upon which UK business law is built.
The option to set up a company to protect oneself from liability, on the other hand, is certainly vulnerable to abuse. As a result, both Parliament and the courts have the authority to reject a company's corporate identity and impose liability on people responsible for it. This disregard for a company's corporate personality is known as 'piercing' or 'lifting' the'veil,' which refers to the 'corporate veil,' which protects the company's members and directors from liability (although Lord Neuberger criticized the use of these phrases in VTB Capital plc v Nutritek International Corp ).
English Company Law - The benefits and drawbacks of incorporation
It is critical to realize the advantages and disadvantages that come while conducting business through a company in order to comprehend the genuine significance of the firm.
When compared to operating a business through an unincorporated structure, operating a business through a company provides a number of major advantages.
The fundamental benefit is that the company gains corporate (or distinct, or legal) personality, which leads to a slew of other benefits. This means that the company is treated as if it were a person in the eyes of the law. Humans are classified as natural persons, whereas the firm is a legal entity that can perform many of the same functions as humans.
Liability is limited.
Because the corporation is a separate entity, the members are normally not personally liable for its debts and obligations; instead, the company is liable. This does not, however, imply that the members are not obligated to contribute anything. When a company's obligation is unlimited, so is the liability of its members. However, because the vast majority of businesses are limited, the members' responsibility will be limited as well.
Limited liability, without a doubt, reduces the risk that members bear and stimulates investment in businesses. Limited liability has the drawback of protecting members while potentially weakening the position of the company's creditors. Creditors in a sole proprietorship or ordinary partnership can collect debt repayment from the sole proprietor's or partners' personal assets. In most cases, the corporation's creditors can only look to the company for payment. Limited liability, it has been argued, does not so much reduce the members' risk as it shifts it away from them and onto the company's creditors.
Companies are not vulnerable to the same physical flaws that individuals are. As a result, companies can endure indefinitely, and there are countless existing companies that are centuries old. Members and directors may come and go, but the company survives (for a striking example, see Re Noel Tedman Holdings Pty Ltd  in Australia). Compare this to a partnership that can be dissolved if one of the partners dies.
Capacity for contracting
Because the corporation is a legal entity, it can enter into contracts with both internal and external parties.
 Lee v Lee's Air Farming Ltd 12 AC (PC) Facts: Lee worked as a pilot for a corporation in which he owned 2,999 shares (out of a total of 3,000) and was the sole director. His jet crashed while he was on company business, killing him. His widow claimed compensation from the company for his death, which was only available to the widows of deceased employees under the relevant statute. The insurers for the company contended that Lee was not an employee since he was synonymous with the company and thus had signed a contract with himself (which was illegal under the law because agreement required two parties). Lee's widow was entitled to compensation, according to the court. Lee had established a contract with the firm, which was a different entity, rather than with himself. The fact that he owned practically all of the company's shares and served as its only director did not change the fact that he worked for it.
Asset ownership is important.
As a legal entity, the company's assets are its property. This creates a clear distinction between the company's property and the members' property, and the members have no proprietary stake in the company's assets.
It's crucial to know which property belongs to the company because any capital borrowed by the company is usually secured against the company's assets, not the assets of the members/directors, and if the company fails to repay the loan, creditors can seek repayment against the company's assets, but not against the members/directors' assets (unless personal guarantees have been entered into).
Northern Assurance Co Ltd v Macaura  AC 619 (HL) Facts: Macaura was the owner of a timber yard. He formed a company and transferred all of the timber to it in exchange for a number of shares in the new company. He then insured the timber against fire damage in his own name. The timber was later destroyed in a fire, but the insurance company refused to compensate the owners. The insurance company was within its rights to withhold payment since, while the timber was insured in Macaura's name, it belonged to the company he founded, not to him. As a result, Macaura had no insurable interest in the timber and was unable to make a claim under the policy.
Creating and Participating in other business structure.
A company , like a person, has the freedom to form alternative business structures. A company can form a partnership with other people or incorporate another company (CA 2006, s 7(1)) or LLP (LLPA 2000, s 2(1)). A company, on the other hand, cannot be a sole proprietorship. A company can also engage in other ventures. A company can be a member of another company (but a subsidiary normally cannot be a member of its owning company (CA 2006, s 136(1)). A business can operate as a company secretary and, at the time of writing, as a director, although this will change once section 156A of the CA 2006 takes effect . A company can be a partner in a partnership or a member of a limited liability partnership (LLP).
Having the ability to file a lawsuit Determining who can sue in circumstances involving unincorporated businesses (particularly partnerships) has proven to be a challenging problem in the past. In the case of companies, there is no such dilemma because it is obvious that when a company is wronged, the company, as a person, is usually the proper claimant. Members can, however, file a derivative claim for a harm done to the company in specific circumstances.
Shares that can be transferred
The transfer of one partner's interest to another in a partnership can be a very complicated process that can have a negative impact on the partnership's operations. Transferring interests in a firm, on the other hand, is simple due to the transferable nature of the share. If a shareholder decides to transfer his interest in the company, all he has to do is sell his shares, and his interest in the company is terminated.
A 'floating charge' is a type of security that is available to incorporated entities. Floating costs are now prohibited for solo owners and ordinary partnerships. When compared to sole proprietorships and regular partnerships, which, despite their unlimited liability, sometimes find it difficult to raise considerable sums of loan capital, companies with access to this type of security find it easier to borrow money.
Human rights are important.
Because a corporation is a person, several laws that protect individuals may also apply to corporations. For example, the European Convention on Human Rights not only protects natural individuals, but a number of its clauses also cover legal persons (hence, the use of the term "human" in the title may be misleading). For example, Article 1 of the Convention's First Protocol states that "every natural or legal person has the right to the peaceful enjoyment of his belongings."
While there are several noteworthy advantages to incorporation, a promoter considering incorporation should be aware of some downsides.
Formality, regulation, and public awareness have all increased.
Unincorporated firms are not subject to the same level of formality and regulation as corporations. Setting up a corporation is more difficult than forming a sole proprietorship or a regular partnership. The increased formality and regulation extends beyond the foundation of the firm, with complex requirements that can apply throughout its lifetime. Directors are bound by a number of legal obligations that sole proprietors and partners are not. Incorporation also means a loss of privacy, as most businesses must make some information (such as financial statements) publicly available for the duration of their existence. Furthermore, the Companies House Service provides free access to all information on Companies House's public register. Only if information on a company's commercial actions is freely available can it be held accountable. As a result, the UK company law system has substantial disclosure responsibilities and promotes corporate openness. Significant volumes of financial information (e.g. yearly accounts) are required to be disclosed by businesses. Every year, corporations must prepare a variety of annual reports, with quoted companies required to publish supplementary reports (such as the directors' remuneration report) and comply with FCA Handbook disclosure rules. Companies are also required to keep some information in a number of statutory registers (for example, the register of members and the register of directors), which are open to the public. The SBEEA 2015, for example, adds a new Pt 21A to the CA 2006, requiring firms to keep a new record, the PSC register, which lists persons with considerable power over the company. The Register of People with Significant Control Regulations 2016 has detailed rules.
Liability, both civil and criminal
As mentioned before, if a firm has been wronged, it can file a lawsuit to correct the situation. Similarly, if a firm commits a civil wrong, it can be sued and have a remedy imposed on it (for example, compensation, or an order to halt or engage in a specific act). A corporation can also be found guilty of a crime. However, it was established in the case of R v ICR Haulage Ltd  that because a corporation cannot be imprisoned, it cannot be found guilty of any offence for which the only punishment is imprisonment (e.g. murder). Because a firm can only function as a result of the conduct of others, imposing civil and criminal culpability on it adds to the complications.
English Company Law - 'Off-the-shelf' companies
Preparing the registration documentation is not difficult, but it does necessitate familiarity with the procedures for forming a corporation. Individuals who lack such information or who wish to minimize the time and effort involved in drafting the registration forms may decide to hire an incorporation agent (also known as a company formation agent) instead. Incorporation agents file the necessary paperwork and then put the newly formed business "on the shelf" until it is purchased.
When a company is purchased, the agent notifies the registrar of companies of the new owner's identity as well as any applicable changes (such as a change of registered office or directors).
According to the Company Law Review Steering Group, around 60% of all new businesses start out as off-the-shelf businesses. Be aware of the importance of this way of acquiring a firm, as well as the benefits (e.g., quickness and low cost) and drawbacks (e.g., the company may not be tailored to the purchaser's demands) of doing so.
English Company Law – Incorporation by Registration
Creating a company by petitioning Parliament or the monarch is not the most accessible or expedient method. As a result, the Joint Stock Companies Act of 1844 established a simpler and faster method of incorporation, called incorporation by registration. Today, the vast majority of new businesses are formed through registration. The term "incorporation through registration" refers to the process of filing "registration paperwork" with Companies House. Once these documents have been registered and authorized, a corporation can be formed. The memorandum of association an application for registration, and a certification of compliance are all required documents under Section 9 of the CA 2006.
The company's proposed name; the address of the company's registered office; whether the company is to be public or private; whether the members' liability is to be limited or unlimited, and, if limited, whether it is to be limited by shares or by guarantee; if the members' liability is to be limited by guarantee, then a statement of guarantee must be included; and whether the company is to be public or private.
If the company will have a share capital, a statement of capital and first shareholdings must be included; a statement identifying the company's proposed officers (i.e. the first director(s) and, if applicable, the first company secretary) must also be included. A statement of compliance must be filed, stating that all statutory registration requirements have been met.
Furthermore, the Small Business, Enterprise and Employment Act 2015 (SBEEA 2015) amended the CA 2006 to require companies to provide: a statement identifying persons who have significant control over the company; and, if the company is private and the promoters have elected for Companies House to keep its statutory registers, a notice indicating this must be delivered to Companies House upon registration. If the registrar of companies is satisfied that the documents are complete and accurate, he will issue a certificate of incorporation upon payment of the registration fee, which serves as irrefutable confirmation that the company is properly incorporated under the CA 2006 (CA 2006, s 15(4)). The company will have all of the powers and liabilities of a registered company as of this date, and the proposed directors will formally become directors, subject to a number of statutory obligations.
English Company Law – Companies Incorporated by Royal Charter
Royal Charter Incorporation A business can be established with a Royal Charter. Historically, such "chartered companies" were formed by the monarch personally using the Royal Prerogative, but today they are formed by the monarch with the advice of the Privy Council. The Bank of England, the Law Society, and the BBC are all instances of companies formed under Royal Charter.
Modern charters are almost exclusively granted to bodies engaged in educational or charitable work (the most notable recent chartered company being the Recognition Panel, which is the approved regulator of the media recommended by the Leveson Report), with very few companies created by Royal Charter (only three in 2019).
English Company Law – Companies Incorporated by Act of Parliament
Act of Parliament Incorporation
By passing an Act of Parliament, Parliament can establish a corporation. For example, the Olympic Delivery Authority, which was established by the London Olympic Games and Paralympic Games Act 2006, was in charge of organizing the London 2012 Olympic and Paralympic Games.
English Company Law - Incorporation Techniques
A business can be formed in one of three ways: by Act of Parliament, Royal Charter, or Registration. It's worth noting that the CA 2006's provisions normally apply solely to companies formed by registration (also known as registered companies), though they can be expanded to include unregistered companies (i.e. firms formed by Act of Parliament or Royal Charter). Although the vast majority of companies formed in the United Kingdom are registered, the two techniques for forming an unregistered company are worth mentioning.
English Company Law – Introduction to Incorporation
Introduction Sole proprietorships and ordinary partnerships can be formed quickly and with little government participation. Companies (and limited liability partnerships) are formed at the state's discretion through a formal process known as 'incorporation.' Because successful incorporation creates a 'corporation' (or, as s 16(2) of the CA 2006 puts it, a 'body corporate'), the term 'incorporation' is employed.
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