Adams v Cape Industries

Adams V Cape Industries

Introduction: Fundamental Principles

The law of divided business individuality is a extended establishment and an essential column of contemporary law of company. In the marker case of Salomon v Salomon & Co. (1897), the House of Lords lined that, not respective to the degree of shareholder's attention in a company, and in spite of of the detail that the investor may put into effect entire de facto power of the corporation associations as its leading administrator, the actions of company would bot be considered as his actions, and that its legal responsibility cannot measured his accountability. In that case Lord Macnaghten stated that:

"The corporation is at regulation a diverse individual on the whole from the communication subscribers and, even though it may be said that after amalgamation the business is accurately the identical as it was earlier than, and the same persons are manager, and the same hands collect the earnings, the corporation is not in law the mediator o/the subscribers or trustee for them. Nor are the subscribers as associates responsible, in any figure or shape, apart from to the amount and in the way provided by the Act. That is, I think, the affirmed meaning of the performance."

Consequently it is presented in such sense that that the reality and truth of investor controls the performance of the bsusiness , it is not at law a adequate rationale for not taking notice of the splitted and legal individuality of the business. The process of the code of Salomon must be prominent in a way that it will never benefit to the overriding personality in the corporation.

The model of extrication of the business personalities and restraining the accountability of the shareholders in a corporation was conjectural in order to: persuade entrepreneurial movement, facilitate trading on public securities exchanges and facilitate investment activity and to protect shareholders from tortious liability.

In recent time, large companies have sought to take advantage of the operational benefits that the corporate group form can offer them. By doing so, they also position themselves to take advantage of the Salomon Principle: where a parent company can hold shares in a subsidiary company and still find itself still remaining separate from its own subsidiary. This means that the idea of separate corporate personality does not just stand to serve actual individual shareholders as in Salomon v Salomon & Co. (1897), but will also serve a company standing behind another company.

The principle of separate personality has been time-honoured and widely accepted, however there have still been several challenges made to circumvent the principle. These challenges have come where individuals have endeavored to hold those standing behind the company, accountable for the company's sum unpaid and legal responsibility. The concept of using the judiciary or legislature to prevent a company's legal personality from being separated from its members is known as the "exciting of the corporate veil". This has been repeatedly attempted in the context of corporate groups: where there are holding and subsidiary companies ...