Companies Law in the United Kingdom

Companies Law in the United Kingdom

History

Corporate Law in the United Kingdom has its roots in the 19th century. There are a number of corporate associations that had been created prior to the development of the corporate law. In times before the corporate law, traders made transactions based on mutually agreed practices. Every time two businesses came together with the intention of earning profit, a partnership was deemed to have taken place. There were also associations that were tasked with the responsibility of regulating business practices. With Britain's intent of developing a mercantile empire came the need for a Royal Charter. In 1600 A.D. the East India Company was created. With the Queen's royal decree, the company had the right to trade with all countries on the East of Cape of Good Hope. Corporations at that time operated on behalf of the government.

Lifting the Veil

In case a corporation goes bankrupt, there are a number of scenarios through which courts can lift the veil of incorporation over a limited corporation. The court, through this process, can hold the investors and shareholders liable for repaying the debts owed to the lenders. But, in the United Kingdom Corporation law the number of such scenarios is severely limited. This limitation was a resultant of the 'principle' in the A Salomon & Co Ltd. vs Salomon case. In the aforementioned case, a cobbler from Whitechapel initiated his corporation under the Companies Act of 1862. At the point of initiation, there were required seven members to begin a corporation, due to the belief that the legislation considered partnership as a more appropriate manner in which to run a partnership.

Mr. Salomon had abided by this requirement by convincing six members of his family to own a share each in the business. In return for the agreement, he invested capital in the business and made the corporation issue a debenture that would be able to recover debt in priority to other lenders in case the corporation went bankrupt. The fear came true and the corporation went insolvent and the liquidator, on the behest of the other members made an attempt to sue Mr. Salomon personally. Though the Court of Appeal ruled that Mr Salomon had been in violation of the parliament's legislation by registering inactive shareholders which would have made Mr Salomon recover the corporation, the ruling of the House of Lords held that as long as Mr Salomon had abided by the requirements of a partnership, shareholders' assets should be considered a distinguished entity from the corporation that stood as a separate legal being. In this case, there could be no lifting of the veil in general.

This principle remains open to a number of varying qualifications. Most significant of these qualifications is that the law may, indirectly or directly, require the corporation should not be regarded as being a separate body. According to the Insolvency Act of 1986, section 214 of the statute states that the directors of the ...