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Corporate personality: Meaning and nature
Corporate personality or the fiction that the company is a separate person in the law was decisively laid down in Salomon v Salomon Co Ltd. In this case, the House of Lords held that a company has its own legal personality. Since then, the concept of corporate personality has come to be entrenched as an important concept in the English company law. Even prior to Salomon, the principle of separate legal personality was applied in Foss v Harbottle, in the context of the company being the proper plaintiff in cases in its name. The gist of these early cases is that corporate personality is an established fiction as per which the rights and liabilities of the company are its own.
Abuse of corporate personality
The Salomon case exemplifies how corporate personality can be used by shareholders to gain unfair advantages over third parties as well. A common abuse of corporate personality by shareholders is where company is created as a way for shareholders to evade their legal obligations. An example can be found in Gilford Motor Company v Horne Ltd, where the company was incorporated for the purpose of avoiding the shareholder’s contractual obligation of non solicitation from his previous employer.
Piercing of corporate veil- the jurisprudence
Courts developed the jurisprudence of doctrine of piercing of corporate veil to address the abuse of corporate personality. Different decisions exemplify the way in which the doctrine has been used to counter the adverse effects of corporate personality abuse by the shareholders. In Moore Stephens v Stone & Rolls Ltd, the court used this doctrine to attribute liability for fraud to the sole director. In Jones v Lipman, the court used it to declare a company as a sham when the purpose of the company was to evade contractual liability. In Thorne v. Silverleaf, the court declared a company to be a sham when it was incorporated for evading liability.
How doctrine of corporate personality can address the abuse of corporate personality
Courts have used the doctrine as an exception and this is an important point to note because the rule remains the one laid down in Salomon. In Prest v Petrodel Resources
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