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Limited Liability, Corporate Personality and Removing the Veil – Evaluate whether judges should adopt a more interventionist role in corporate affairs?

Limited Liability, Corporate Personality and Removing the Veil – Evaluate whether judges should adopt a more interventionist role in corporate affairs?

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An essay for the 2011 Undergraduate Awards (Ireland) Competition by Robert Stewart. Originally submitted for LLB (Hons) Law with Government at University of Ulster, with lecturer Amanda Zachrapoulou in the category of Law
An essay for the 2011 Undergraduate Awards (Ireland) Competition by Robert Stewart. Originally submitted for LLB (Hons) Law with Government at University of Ulster, with lecturer Amanda Zachrapoulou in the category of Law

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Published by: Undergraduate Awards on Aug 31, 2012
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05/13/2014

 
LIMITED LIABILITY, CORPORATE PERSONALITY AND REMOVING THEVEIL – EVALUATE WHETHER JUDGES SHOULD ADOPT A MOREINTERVENTIONIST ROLE IN CORPORATE AFFAIRS?
WORD COUNT – 3215 (4426 INCLUDING COVER SHEET, FOOTNOTES & BIBLIOGRAPHY)
Page 1 of 14
 
 Limited Liability, Corporate Personality and Removing the Veil Evaluate whether  judges should adopt a more interventionist role in corporate affairs?
According to Professor Nicholas Murray Butler, President of Columbia University from1902-1945, the “limited liability corporation is the greatest single discovery of moderntimes. Even steam and electricity are less important than the limited liability company.”
1
The reason for the importance is that a very large proportion of the world’s wealth has been generated by such companies but is separate corporate personality and limitedliability fair and just? This will be reviewed in this essay comparing the limited liabilitycompany to other types, before looking at the development of the limited liabilitycompany with distinct corporate personality and the key cases. The goal is to evaluatewhether judges should adopt a more interventionist role in corporate affairs, aided byacademic commentary of the judgements that have been made by the courts in a number of the relevant cases, so that an informed conclusion may be reached.The Partnership Act of 1890 is the statute that regulates the law relating to standard partnerships. Section 1 defines a partnership as “the relation which subsists between persons carrying on business in common with a view of profit.”
2
A partnership musthave at least two partners, there are no filing requirements and a partnership facilitatesinvestment with each of the partners owning the assets of the business. The PartnershipAct gives joint and several liability to each of the partners involved with the business soshould the business fail, a wealthy partner could be sued by a creditor for the debt thathas accrued (although he make seek to recover a contribution from other partners if he pays more than his share). The key point is that the partners are personally liable for thedebt, even so called ‘sleeping’ partners
3
.A sole trader is also personally liable for thedebts and liabilities incurred.There are other types of partnership, the Limited Partnership and the Limited LiabilityPartnership. In a Limited Partnership one or more ‘general’ partners accept responsibility
1
A.L. Diamond, Orthnical (Ed), Limited liability and the corporation, Law Society of Canada 1982, citedin J. Dine & M. Koutsias,
Company Law
, Palgrave Macmillan, 6
th
Ed, 2007, p1
2
A. Hicks & S.H. Goo,
Cases & Materials on Company Law
, Oxford University Press, 6
th
Ed, 2008, p95
3
See Mercantile Credit Co v Garrod [1962] 3 ALL ER 1103
Page 2 of 14
 
for all debt and liabilities so therefore there is one or more ‘limited’ partner limited withliability. This is not very popular and there are some filing requirements with CompaniesHouse. In the Limited Liability Partnership every partner is an agent. This is a kind of incorporation that also has filing requirements with Companies House. The partners arenot liable for debts but are liable for negligence meaning they are still accountable toclients and this should mean they take more care with them. These types of partnershipmust be mentioned, but for the purposes of this essay, when referring to a partnership itwill be the type mentioned in the previous paragraph.In a limited liability company where the company is limited by shares
4
, under s74 (2)(d)of the Insolvency Act 1986
5
, the liability of the members both past and present isrestricted to the amount of unpaid share capital (if any).
6
This has the effect of protectingthe personal assets of an incorporated company from creditors (a barrier commonlytermed as the veil of incorporation), unlike the circumstances in a partnership. There arenumerous advantages of incorporation with the most obvious including limited liability, business assets being vested in the company, the ability to sue or be sued in thecompany’s name, perpetual succession, transferable shares and the ability to create acharge over assets to facilitate finance. There may also be taxation advantages.Disadvantages include the greater degree of formality and publicity of accounts, theexpenses incurred.
7
There is less flexibility regarding the rules of internal conduct asthese are laid down in the Companies Act 2006.In the company model, as far as the law is concerned, the company really exists and isoften described as an ‘artificial person’.
8
 The company is regarded in law as a person
4
According to Mayson, French and Ryan “As well as having its own personality, a registered company isalso seen as being an association of persons who are called members of the company.Under theCompanies Act 2006, those who wish to register a new company must subscribe their names in a‘memorandum of association’. In the vast majority of companies, membership is based on the holding of shares and thus the terms shareholder and member are one and the same. S. Mayson, D. French & C.L.Ryan,
 Mayson French & Ryan on Company Law
, Oxford University Press, 26
th
Ed, 2009, p6
5
The equivalent legislation in Northern Ireland is the Insolvency (Northern Ireland) Order 1989
6
C. Taylor,
 Law Express: Company Law
, Pearson Longman, 2009, p25
7
J. Birds, B. Clark, I. MacNeill, G. McCormack, C. Twigg-Flesner, C. Villiers, A.J. Boyle,
 Boyle & Birds’ Company Law
, Jordans, 7
th
Ed, 2009, p57
8
P.L. Davies with contributions from S. Worthington & E. Micheler,
Gower & Davies’ Principles of  Modern Company Law
, London, Sweet & Maxwell, 8
th
Ed, 2008, p33
Page 3 of 14

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