Busines organization Essay Example | Topics and Well Written Essays - 2250 words

Busines organization - Essay Example ts have regarded the debts of the corporation to be that of its shareholders, thereby piercing the corporate veil.2 The separate legal existence of a company was established by the court in the Salomon case. 3 As such, in Salomon v Salomon, 4 their Lordships created the rule that a company constitutes a separate legal entity that is distinct from its members. 5 This provided the direction to contemporary company law and the character of private limited companies. 6 European statutory provisions have incorporated this significant maxim. The objective behind providing for a separate legal persona and limited liability is to promote investment, foster trade and to furnish entrepreneurs with an incentive to commence new business. 7 In addition, in Adams v Cape Industries plc,8 a complete review of the Salomon ruling was achieved by the Court of Appeal. This case considered liability inside a group of companies. The claimant, moved the court to render the parent company liable for the obligations of the subsidiary company. The Court of Appeal lifted the corporate veil on the basis of the following considerations; namely, faà §ade, agency and single economic unit. 9 In its judgment, the Court of Appeal declared that the corporate veil could be pierced if there was an express agency agreement between the subsidiary company and the parent company. The presumption of an agency relationship, strictly relied upon the presence of such an agreement. 10 The Court, also held that the veil could not be pierced, merely because the defendant company was a member of a group of companies and the corporate framework had been adopted to avert the liability of the defendant company. 11 GHI Ltd was working as a subsidiary of its parent company ABC Ltd. As such, GHI Ltd can be deemed an agent of its parent company ABC Ltd. Furthermore, in DHN Food Distributors Ltd v Tower Hamlets London Borough Council,12 Lord Denning of the Court of Appeal held that the group of companies, in question,