CRITICAL ANALYSIS

“In spite of the obvious economic connection between companies within the same group, English company law has steadfastly maintained its policy of treating such companies as distinct legal entities.”

“In spite of the obvious economic connection between companies within the same group, English company law has steadfastly maintained its policy of treating such companies as distinct legal entities.”

Introduction

In order to explain the statement this essay will explore the background to treating companies as distinct legal entities; review certain cases trying to pierce limited liability; discuss the application of these rules to groups of companies; and then consider whether there is a need for reform. Over a century ago the English Courts established the basic principle of separate corporate personality: “the corporation has a separate existence from the shareholder” per Vaughan Williams J in Salomon v Salomon. A distinct legal personality can “own and deal with property, sue and be sued in its own name and contract on its own behalf.”

When people get associated for the purpose of furtherance of business the association is called a company. When the company gets incorporated into law, it becomes a separate legal entity from that of their owners or shareholders with several rights, duties, obligations and liabilities vested. The company as a separate legal entity can sue and be sued.

The concept of separate legal entity is discussed in order to explain the statement and analyse the importance of the distinct legal personality in the companies. Lifting the corporate veil is one of the concepts that is significant in the development of company law and thus making the company a separate entity opposing the limited liability. The concept of separate legal entity is discussed and analysed below in order to explain in detail the statement and show the importance of the concept in the modern company's law in UK. The companies of the same group often refer to the parent company and the subsidiary companies or branches. Often such branches exist at multiple physical locations, mostly, across the borders. For example, a corporation with parent company at UK may have subsidiaries at Japan and Singapore.

Obviously, these companies have close economic interconnections. Most of the times, such companies depend on each other for the manufacture of different components, and at the end, all the subsidiaries report back to the parent about their performance, or all the individual components are combined into one unit, which becomes ready for sale. For example, the world leading beverage company Coca Cola, has many subsidiaries for the production of concentrates for managing the branding and customer care operations. The economic connections between all the Coca Cola subsidiaries are clear, as all of them are interconnected.

In this essay, the concept of corporation as a distinct legal entity is discussed. Based on this discussion, the given statement is explained. The essay also analyses the importance of the distinct legal personality in the companies, and significance of lifting the veil between the groups of companies. Lifting the corporate veil is one of the ...