The But that was not true. The courts

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Last updated: May 22, 2019

Theprinciple of corporate legal personality was used by religious organizations,before it became a key principle of company law, to hold property in their ownrights. With time, this principle was approved by the parliament in 1844 whenit passed the joint stock companies act. Thedevelopment of the principle of corporate personality during that time gaverise to many common law developments like the changing of legal conception of ashare. These changes were reflected by the companies act 1862 as the act introduceda new wording in s.

6 which implicitly described a registered company as beingseparate from that of its members by providing that members may form anincorporated company. There were some commercial developments too which changedthe legal and functional nature of the company form.  Butit was not until the Solomon’s case at the end of the 19th century thatthe concept of corporate personality was fully established.

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Since then itis being followed till the present date but the way it has been followed hastaken many different approaches. The period between 1897-1996 was the periodwhere the courts tried the different approaches of the doctrine keeping in mindthe decision of the house of lords in the case of Solomon v. Solomon.

This wasthe period of early experimentation of the doctrine of corporate personality. Then came the period where thedoctrine of veil lifting was encouraged which changed the rules of Solomon’scase. This was the period from 1966 to 1989. Lord Denning in LittlewoodsMailstores v IRC stated that “the doctrine laid down in Soloman’s case has to bewatched very carefully.

It has often been supposed to cast a veil over thepersonality of a limited company through which the courts cannot see. But thatwas not true. The courts could, and they often did, pull off the mask.

“AM3 This was the period where the courts began to disfavour the doctrine ofCorporate Legal personality by often lifting the veil of the corporation.This continued erosion of the doctrine of corporate personality createduncertainty over the virtues of incorporation . From 1989 to the present date, the courts moved back to the strict legalapproach in Solomon’s case and began to discourage the doctrine of veil liftingkeeping the rules of Solomon’s case intact. Woolfsan v. Stratheclye,Regional Council is the famous case which began to disapprove veil lifting and inthat case, “Lord Keith stated that the only situation where a corporate veilcould be lifted was where there are special circumstances indicating that thecompany is a ‘mere facade concealing the true facts.’ Thus, the English Courts afterthe judgement of the Court of Appeal in Adams v. Cape Industries started totake a very narrow view of the doctrine of veil lifting.

“It was always clear that the courts were not interested in challengingthe decision of House of Lords in Solomon’s case. Therefore, the principle ofcorporate personality remains the ground upon which modern company law isbased.Theimportance of the principle of corporate personality lies in the consequencesthat flows from it. 

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