The Legal Entity System Has Profoundly Affected The Process Of Human Economic And Social Development

671 [2d Dept. 2010], internal citations omitted). "Additionally, the corporate veil will be pierced to achieve equity, even absent fraud, [w]hen a corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator 's business instead of its own and can be called the other 's alter ego '" (Id. at 671-672, internal citations omitted). "[A] party seeking to pierce the corporate veil must establish that (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in the plaintiff 's injury" (Superior Transcribing Serv., LLC v Paul, 72 AD3d 675, 676 [2d Dept. 2010], internal citations omitted).

This essay will explain the concepts of separate personality and limited liability and their significance in company law. The principle of separate personality is defined in the Companies Act 2006(CA) ; “subscribers to the memorandum, together with such other persons as may from time to time become members of the company are a body corporate by the name contained in memorandum.” This essentially means that a company is a separate legal personality to its members and therefore can itself be sued and enter into contracts. This theory was birthed into company law through the case of Salomon v Salomon and Co LTD 1872. This case involved a company entering liquidation and the unsecured creditors not being able to claim assets to compensate them. The issue in this case was whether Mr Salomon owed the money or the company did. In the end, the House of Lords held that the company was not an agent of Mr Salomon and so the debts were that of the company thus creating the “corporate Veil” .

Although courts are reluctant to hold an active shareholder liable for actions that are legally the responsibility of the corporation, even if the corporation has a single shareholder, they will often do so if the corporation was markedly noncompliant, or if holding only the corporation liable would be singularly unfair to the plaintiff. The ruling is based on common law precedents. In the US, different theories, most important "alter ego" or "instrumentality rule", attempted to create a piercing standard. Generally, the plaintiff has to prove that the incorporation was merely a formality and that the corporation neglected corporate formalities and protocols, such as voting to approve major corporate actions in the context of a duly authorized corporate meeting. This is quite often the case when a corporation facing legal liability transfers its assets and business to another corporation with the same management and shareholders. It also happens with single person corporations that are managed in a haphazard manner. As such, the veil can be pierced in both civil cases and where regulatory proceedings are taken against a shell corporation.

Fraudulent financial reporting is one form of corporate corruption and may involve the manipulation of the documents used to record accounting transactions, the misrepresentation of accounting events or transactions, or the intentional misapplication of Generally Accepted Accounting Principles (GAAP) (Crumbley, Heitger, and Smith, 2013). Examples of fraudulent schemes befitting of this category abound and usually involve financial statement items that have been misclassified, omitted, overstated, undervalued, or prematurely recognized. One case involving CEO Bill Smith of Moonstay

In fraud committed against organizations, the victim of fraud is the employee’s organization. In frauds committed on behalf of an organization, executives usually are involved in some type of financial statement fraud; typically, to make the company’s reported financial results appear better than they actually are. In this second case, the victims are investors in the company’s stock. A third way to classify frauds is via the use of the ACFE’s occupational fraud definition, “the use of one’s occupation for personnel enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets” (ACFE, 2010). The ACFE includes three major categories of occupational fraud: asset misappropriations involves the theft or misuse of the organization’s assets, corruption involves the wrongful use of influence in a business transaction in order to procure benefits contrary to their duty to their employer, and fraudulent financial statements involving falsification of an organization’s financial statements for personal gain.

Most word references characterize fraud as a bogus representation of true data. Whether that false data is given by expressing false words, deluding claims, or by concealing or disguising uncovered data, it is viewed as fraudulent because of the beguiling nature. In spite of the fact that it is deceptive to give false data, people even in real companies will attempt to cover their misfortunes by reporting false data. Taking after many years of monetary frauds and outrages including executives and officers at a portion of the biggest organizations in the United States, Congress established the Sarbanes-Oxley Act of 2002 (Cheeseman, 2013). Congress ordered the Sarbanes-Oxley Act of 2002 (SOX Act) to shield customers from the fraudulent exercises of significant partnerships. This paper will give a brief history of the SOX Act, portray how it will shield general society from fraud inside of partnerships, and give a presumption to the viability of the capacity of the demonstration to shield purchasers from future frauds.

This subject company in this case study is WoolEx Mills. The top management team at the Mills had to act fast to prevent the accusations charged upon them, so that they may venture deep into the United States market. In the process, they had to act in a way that will present the company’s financial statements; cash flows in a way that they did not show any suspicious fraudulent activities. The type of fraud in this case study is known as manipulation of accounts which involves the act of offering the accounts in the way they are not in reality.

There were 347 alleged cases of fraud involving public company according to Fraudulent Financial Reporting: 1998-2007 sponsored by Committee of Sponsoring Organizations of the Treadway Commission (COSO, 2010) that were investigated by Securities and Exchange Commission (SEC) on May 2010, which is showing 53 increased in the number of fraud when compared to the 1987-1997 study (p.5). COSO’s result is a sad number in a 10 year period, which averaging close to 35 accounting frauds a year (p.5). COSO’S study shows out of the nearly 350 financial frauds investigated 60% were identified to involved improper revenue recognition and 89% were recognized the CEOs and/or CFOs involvement (p.5). COSO’s research

Although doctrine of separate legal entity has the greatest importance in company law, it contains weaknesses that could be arguable. Professor Kahn-Freund described the doctrine as “calamitous” because it arise many issues, such as “How is it possible to check the one-man company and other abuse of company law?” Separate legal entity is inadequate for complex problems .

Some industry-specific factors, such as having valuable near-cash assets, can increase the organization's vulnerability. Also they will need to rationalize the actions as justifiable. The individuals committing the fraud must first convince themselves that their behavior is acceptable or will be temporary. For example, Barry Minkow’s believed that the lies and deceit are for the betterment of his company and that with time everything will eventually return to normal.

When a company is incorporated it is treated as a separate legal entity distinct from its promoters, directors, members, and employees, which confers the benefit of not being responsible for the companies debt on the members on the company. However even though a company is a separate legal entity and it attains the advantage of not laying the responsibility of company’s debt on the

There is no clear framework of the rules that would cover the contingencies of a ruling to pierce the corporate veil Idoport Pty Ltd v National Australia Bank Ltd. The corporate Veil usually protects owners and shareholders from being held liable for corporate duties. Yet again a decision made by the court to lift that veil and would place the liability on shareholders, owners, administrators, executives and officers of the company without ownership interest. The purpose of this essay is to conduct an analysis on the concept of lifting the corporate veil and to review the different views on its fairness and equitability to present a better understanding of the notion, the methods used was throughout researching the numerous scholars views on the subject, case law and statutes examples, and the evidence provided by the empirical study of Ramsay & Noakes. When we discuss the lifting the corporate veil the first case that pops out is the case of Salomon V A. Salomon & Co Ltd, since the decisions of applying the corporate veil were first formed as a consequence of this case. The idea covers all of company law and distinguishes that a company is a separate legal entity from its members and directors. Furthermore, spencer (2012); have indicated that one of the core principles that followed the decision in Salomon v Salomon was the wide acceptance one man company’s. However In order to form a

The decision of Salomon v. Salomon which brought about the doctrine of separate legal personality is one which has evolved over time. Over a century and still counting, the principle illustrated in Salomon, courts have are still reluctant in placing limitations on corporate personality and rejecting other approaches which pose as a greater challenge to the doctrine . From time immemorial, judicial history, lawyers and judges have reiterated that the doctrine of corporation is an intangible legal entity, without the body and soul. In Athanasian terms, the orthodox doctrine of corporation as a legal person, separate and distinct from the personality of the members who compose it, has been defined and propagated .

Corporation origin from the Latin word Corpus which means body. It is formed by a group of people and has separate rights and liability from those individual. In any means, corporation exists independently from its owner and this principle is called the doctrine of separate personality. Doctrine of separate personality is the basic and fundamental principle in a Company Law. This principle outline the legal relationship between company and its members. Company’s assets belong to the company not the shareholders as assets are the equity for creditors. Company must use up all its assets to pay off the creditors if it became insolvent. The same applies to the corporation’s debts. For limited liabilities company, the shareholder liability is limited which means that the shareholder is restricted to the number of shares they paid and not personally liable for the corporation’s debts. If the company does not have enough equity to pay off debts, the creditors cannot come after the shareholders. However, limited liability company can be very powerful when in hands who do fraud and on defeating creditors’ claims. Courts then can ignore the doctrine for exception cases and lifting the corporate veil. Lifting the corporate veil is a situation where courts put aside limited liability and hold a corporation’s shareholders or directors personally liable for the corporation’s debts.

Counter-party in corporate transactions (serve as a single contracting party that is distinct from the various individuals who own pr mange the firm);