Professional Documents
Culture Documents
Advantages of a Partnership include:1) Very little compliance requirements in comparison with a Private Limited
Company.
2) Partnership Agreement basically a matter of contract and therefore easily
drafted to suit the requirements of the Partners needs.
3) The Partnership Agreement is a private agreement and not subject to
public scrutiny unlike a private limited company so there is a high degree
of confidentiality.
Disadvantages of a Partnership include:-
Statutory Authority
Agency
Misuse of the Corporate Form/Avoidance of Legal Duty
Single Economic Entity
1) Statutory Authority
The Companies Acts allow the Corporate Veil to be lifted under the following
provisions:S. 6 CAA83 The Registrar of Companies issues a Certificate to PLC Companies
and the Company must not commence trading without such Certificate. In the
event that it does so, then the Company and any Officer of the Company may be
found liable to prosecution or to indemnify persons who suffer any loss as a
result.
S.36 CA63 Should the minimum number of members of a Company be reduced
below the number required by Law and the Company continues to carry on its
business for more than six months with such a shortfall then all of the members
who were aware of the deficit will be severally liable for the debts of the
company which incurred after that six month period. The minimum number of
members for private companies is 2 or in the case of a single member private
company it is 1.
S.297 & S.297A CA63 A Director may be found criminally liable for fraudulent
trading or civilly liable for fraudulent or reckless trading.
Other breaches of law (other than those under the Companies Acts) may also
result in the Courts lifting the Veil and finding the Directors or Members
personally liable for the wrongdoing of the company. For example in the High
Court case of John Ronan and Sons v Clean Build Limited (in liquidation) and
Others, Judge Clarke held five former directors and shareholders of a liquidated
company personally liable for the costs of remediating a site in Tallaght on which
significant quantities of construction waste had been allowed to accumulate.
Under the European Communities (Protection of Employees on Transfer of
Undertakings) Regulations 2003 (TUPE), employees are offered protection in
circumstances where an undertaking is sold or transferred to a new owner, the
terms and conditions of the workers of the transferred/sold undertaking are
protected so that they enjoy similar terms and conditions to their employment as
they had before. In other words, the separate legal personality of the transferor
and transferee companies is ignored in order to protect the interests of the
employees concerned.
2) Agency
A company is not per se the agent of its members but such relationship may be
created between the two. The courts have been prepared, in apparent conflict
with Solomons case to infer the existence of a relationship of agency between
companies in the same group.
Subsidiaries are frequently found to be the agent of the parent company. In
Smith, Stone, and Knight v Birmingham Corporation a subsidiary of the plaintiff
company was treated like a department and the Plaintiff was entitled to all of the
profits of the subsidiary without the declaration of a dividend. Atkinson J set out
four criteria for assessing whether a subsidiary was carrying on business as the
agent of the Holding Company:1) Are the profits of the subsidiary treated as profits of the parent?
2) Was the person conducting the business of the subsidiary appointed by
the parent?
3) Was the parent the heads and brains of the trading venture?
4) Did the parent govern the adventure?
The agency principle is relevant and applies in subsidiary holding company
relationships but is not of universal application. However, the principal was
reaffirmed in Fyffes v DCC in which Justice Laffoy held in this instance the
subsidiary was not in fact the agent of the holding company.
personality as a cloak for fraud. The veil will also be lifted by the Court in
situations where the corporate personality is being used to evade an existing
legal obligation.
Re Bugle Press Ltd The courts lifted the Corporate Veil and imposed personal
liability in this case. Here the holders of 90% of the shares in a company wished
to buy out the holder of the remaining 10% but the minority shareholder refused
to sell. The majority shareholders then set up a company to make a takeover bid
for Bugle and under legislation, as this was a takeover bid, the Company could
then compulsorily acquire the minority shareholding. There had of course been
no real takeover of the company and the new company had been formed solely
to with a view to expropriating the minority and the transaction was not
permitted to proceed.
In Jones v Lipman the defendant who had contracted to sell his house to the
plaintiff tried to avoid a claim for specific performance to sell the house. He
conveyed the house to a company which he owned and controlled in an effort to
evade the Plainitiffs enforceable contract for sale. The Court held that the
company in question was the creature of the defendant, a device and a sham, a
mask which he holds before his face in attempt to avoid recognition by the eye
of equity.
In the leading case of Adams v Cape Industries it was decided that the creation
of a corporate structure to allow any potential future liabilities to fall to one
member of the group of companies was legitimate and lawful and not a misuse
of the Corporate Form.
4) Single Economic Entity
Where the justice of the case requires the court will regard the entity as a mere
constituent of a large legal entity or a single economic entity. This is distinct
from implied agency cases for where a number of companies are regarded as
single legal entity only one legal person is recognised, where agency recognises
the existence of two persons.
In DHN Food Distributors Ltd v Tower Hamlet Borough Council, the plaintiff
holding company was held by a Land Compensation Tribunal to only be entitled
to negligible compensation when the land was compulsorily acquired. Lord
Denning held that where the subsidiaries were bound hand and foot to the
parent company they should not be treated as separate entities so as to deprive
them of the compensation which was justly payable.
Concept was also adopted by Costello J in the Irish case of Power Supermarkets
Ltd v Crumlin Investments Ltd and Dunnes Stores (Crumlin) Ltd. In which he held
...a Court may, if the justice of the case so requires, treat two or more related
companies as a single entity so that the business notionally carried on by one
will be regarded as the business of the group or another member of the group if
this conforms to the economic and commercial realities of the situation.
In this case it was held that a related group Company was bound to observe the
restrictive covenant in the Title to premises in a shopping centre even where it
was not party to it.
However concept of single economic entity has not been universally accepted as
was evidenced in Adams v Cape Industries plc, the Court held that it was not
entitled to reject the principles of Salomon v Salomon just because it is required
by justice.
In Rex Pet Foods Ltd v Lamb Bros (Dublin) Ltd, Rex Pet Foods was a subsidiary of
Lamb Bros (Dublin) Limited and the Receiver of Rex tried to argue that business
and assets of both companies should be treated as one, based on the following
facts: