Company Operation and Liability

As a distinct legal entity, a company has the capacity to employ individuals, enter into contracts, and pursue legal actions.1 With regard to Williams v Natural Life Health Foods [1998] 1 BCLC 689, being an artificial entity, it requires individuals to act on its behalf, usually in the form of directors, although there are exceptions to this rule.2 One significant attribute of a company is its perpetual succession, meaning the company continues to exist despite changes in its membership, such as the death, bankruptcy, or retirement of a member.3 The concept of limited liability is connected to the separate legal personality of a company. The law recognizes that a company is a distinct entity from its incorporators or shareholders. Consequently, the liability of those who invest in the company is limited, while the liability of the company itself is unlimited.4 The company is responsible for fulfilling its obligations with the assets it possesses at any given time.

Limited liability and separate legal personality are fundamental principles in company law.5 The courts consistently support the submission that when individuals choose to conduct their affairs through corporations, they benefit from the legal separation between the company and its shareholders.6 Nevertheless, limited liability is not an absolute rule and can be circumvented through contractual arrangements negotiated by creditors with greater bargaining power.7 While there is no general principle with the corporate veil, the courts have developed a variety of specific principles that can be used to lift the corporate veil in specific circumstances. The principle has been subject to criticism for allowing individuals to avoid personal liability for their actions and for enabling illegal activities. However, the courts have shown flexibility in lifting the corporate veil to counter fraud, sharp practice, oppression, and illegality.8

References

  1. Charles Wild, Stuart Weinstein, ‘Smith & Keenan’s Company Law’ (Pearson 2019, 18th edn) p.78
  2. William v Natural Life Health Foods [1998] 1 BCLC 689
  3. Charles Wild, Stuart Weinstein, ‘Smith & Keenan’s Company Law’ (Pearson 2019, 18th edn) p.17
  4. ibid
  5. Charles Wild, Stuart Weinstein, ‘Smith & Keenan’s Company Law’ (Pearson 2019, 18th edn) p.4
  6. Marc Moore ‘"A temple built on faulty foundations": piercing the corporate veil and the legacy of Salomon v Salomon’ J.B.L.180-203 (March, 2006), accessed 13 May 2023
  7. Charles Wild, Stuart Weinstein, ‘Smith & Keenan’s Company Law’ (Pearson 2019, 18th edn) p.4
  8. Marc Moore ‘"A temple built on faulty foundations": piercing the corporate veil and the legacy of Salomon v Salomon’ J.B.L.180-203 (March, 2006), accessed 13 May 2023