Salomon Vs. Salomon Case Quiz ch7\
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Questions and Answers

What is the concept of 'lifting the corporate veil'?

  • It signifies the legal separation between a company and its shareholders.
  • It refers to the process of merging two separate companies into one entity.
  • It indicates the liability of a company for its employees' actions.
  • It means that the court disregards the existence of the corporation because the owners failed to keep corporate requirements and formalities. (correct)

    • Under what grounds may the corporate veil be lifted?

  • Avoidance of welfare registration and enemy character.
  • Reduction of number of members, fraudulent trading, misdescription of the company, premature trading, failure to refund application money, holding and subsidiary companies.
  • Public interest and benefit of revenue.
  • Judicial grounds like fraud or improper conduct, avoiding legal obligations, and statutory grounds like reduction of number of members. (correct)

    • In what situation can a company be assumed as an 'enemy company'?

  • When it fails to refund application money to its shareholders.
  • When its controlling persons reside in a country considered as an enemy. (correct)
  • When it avoids legal obligations by exploiting statutory grounds.
  • When it engages in fraudulent trading practices with other companies.

    • Under what circumstances can a company be considered a 'sham'?

    <p>When it is created as a façade to avoid legal obligations or deceive others.</p> Signup and view all the answers

    'For benefit of revenue' is considered a judicial ground for lifting the corporate veil in order to:

    <p>Disregard corporate entity if used to escape tax obligations.</p> Signup and view all the answers

    'Public interest' as a ground for lifting the corporate veil aims to:

    <p>Disregard corporate entity if used to escape tax obligations.</p> Signup and view all the answers

    In the Salomon vs. Salomon case, what was the key reason for the House of Lords overturning the decision?

    <p>The company's property was considered separate from Salomon's</p> Signup and view all the answers

    In the Macaura case, why did the insurance company refuse to pay for the insured timber that caught fire?

    <p>The timber was not insured in the company's name</p> Signup and view all the answers

    What was Salomon's initial business before it became a limited liability company (LLC)?

    <p>Boot making</p> Signup and view all the answers

    How many family members became shareholders in Salomon's LLC?

    <p>7</p> Signup and view all the answers

    What was the outcome of the lower court's decision regarding Salomon's liability?

    <p>&quot;Guilty&quot; and asked to pay back creditors personally</p> Signup and view all the answers

    What did Mr. Macaura insure in his own name, leading to a legal dispute with the insurance company?

    <p>The insured timber that caught fire</p> Signup and view all the answers

    What did Mr. Macaura hold nearly all of?

    <p>The shares of a timber company</p> Signup and view all the answers

    What was the business Salomon started before it became a LLC?

    <p>boot making</p> Signup and view all the answers

    How many family members became shareholders in Salomon's LLC?

    <p>7</p> Signup and view all the answers

    What was the outcome of the lower court's decision regarding Salomon's liability?

    <p>The lower court found him guilty and asked him to pay the creditors.</p> Signup and view all the answers

    In the Macaura case, why did the insurance company refuse to pay for the insured timber that caught fire?

    <p>The insurance company refused to pay because the insurance was in Mr. Macaura's name and not the company's name.</p> Signup and view all the answers

    What was the key reason for the House of Lords overturning the decision in the Salomon vs. Salomon case?

    <p>The House of Lords overturned the decision because of the concept of 'separate legal entity', stating that the company should be sued and not Salomon himself.</p> Signup and view all the answers

    Under what grounds may the corporate veil be lifted?

    <p>Under fraud, agency, or group enterprise liability.</p> Signup and view all the answers

    What did Mr. Macaura hold nearly all of?

    <p>shares of a company that dealt with timber</p> Signup and view all the answers

    What are 4 points that show incorporated companies have a separate legal personality?

    <p>A- Company’s property is the company’s property. B- Company’s debt is company’s debt. C- Company can sue and be sued in its own name. D- Members are not liable for company's debts.</p> Signup and view all the answers

    What is the concept of 'lifting the corporate veil'?

    <p>It refers to a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders.</p> Signup and view all the answers

    What was Salomon's initial business before it became a limited liability company (LLC)?

    <p>boot making</p> Signup and view all the answers

    What situation led to the appeal to the House of Lords in the Salomon vs. Salomon case?

    <p>Salomon's inability to pay the creditors in liquidation, resulting in the appeal to the House of Lords.</p> Signup and view all the answers

    What is the judicial ground for lifting the corporate veil known as 'for benefit of revenue'?

    <p>It refers to the avoidance of tax liability or other financial obligations through corporate structures.</p> Signup and view all the answers

    Explain the concept of a corporate veil and its principal features according to Salomon's case.

    <p>The corporate veil is the legal concept that separates the identity of a company from its shareholders, thus protecting the shareholders from being personally liable for the company's debts and obligations. The principal features, according to Salomon's case, are that a company is a legal entity separate from its shareholders, it can own property, sue and be sued in its name, and has a never-ending existence.</p> Signup and view all the answers

    What are the judicial grounds for lifting the corporate veil and provide examples for each?

    <p>The judicial grounds for lifting the corporate veil include fraud or improper conduct (e.g., creating a company as a sham to avoid legal obligations), public interest (e.g., to protect public policy), and for the benefit of revenue (e.g., to escape tax obligations).</p> Signup and view all the answers

    Explain the statutory grounds for lifting the corporate veil and provide examples for each.

    <p>The statutory grounds for lifting the corporate veil include reduction of the number of members, fraudulent trading, misdescription of the company, premature trading, failure to refund application money, and holding and subsidiary companies.</p> Signup and view all the answers

    Under what circumstances can a company be considered a 'sham' and provide an example from the text?

    <p>A company is considered a 'sham' when it is fake or created with the intent to deceive or avoid legal obligations. An example from the text is when a company was created as a sham in an attempt to avoid a contractual agreement.</p> Signup and view all the answers

    What is the concept of a company being employed as an agent and what are the requirements to establish this concept?

    <p>The concept of a company being employed as an agent means that a company is acting on behalf of another company, based on the agency principle. The requirements to establish this concept include treating the profits of the subsidiary company as the profits of the holding, the person running the business being appointed by the holding company, and the holding company being the head and brain of the trading venture.</p> Signup and view all the answers

    What is the significance of the 'public interest' ground for lifting the corporate veil?

    <p>The 'public interest' ground for lifting the corporate veil serves to protect public policy and prevent transactions that are contrary to the public interest.</p> Signup and view all the answers

    Explain the concept of 'for the benefit of revenue' as a judicial ground for lifting the corporate veil.

    <p>The concept of 'for the benefit of revenue' as a judicial ground for lifting the corporate veil allows the court to disregard the corporate entity if it is used to escape from tax obligations or for any other financial benefit.</p> Signup and view all the answers

    Under what circumstances can a company be assumed as an 'enemy company' according to the text?

    <p>A company may be assumed as an 'enemy company' when the persons in control of its affairs reside in an enemy country.</p> Signup and view all the answers

    What is the concept of a company avoiding legal obligations and how does it relate to lifting the corporate veil?

    <p>The concept of a company avoiding legal obligations refers to the use of a company to evade fulfilling legal obligations. This concept is related to lifting the corporate veil as the court may disregard the company if it is used to avoid legal obligations.</p> Signup and view all the answers

    What was the outcome of the case where L agreed to sell a house to J, but later created a company and transferred the house to the company, which was controlled and owned by L only?

    <p>The outcome was that the company was created as a sham in an attempt to avoid the agreement, and the court ruled against L's actions.</p> Signup and view all the answers

    Explain the concept of a subsidiary company acting as an agent of the holding company, as mentioned in the text.

    <p>The concept of a subsidiary company acting as an agent of the holding company means that the subsidiary is carrying on the business as the holding's business, and the holding company is ultimately responsible for the actions and liabilities of the subsidiary.</p> Signup and view all the answers

    What is the significance of the 'for benefit of revenue' ground as a judicial ground for lifting the corporate veil, as mentioned in the text?

    <p>The 'for benefit of revenue' ground allows the court to disregard the corporate entity if it is used to escape from tax obligations or for any other financial benefit, thereby ensuring that companies do not misuse their legal status for financial gain.</p> Signup and view all the answers

    Companies can commit ______ and crimes

    <p>torts</p> Signup and view all the answers

    The principal features of Salomon’s case were that a company is a legal entity separate from its ______

    <p>shareholders</p> Signup and view all the answers

    Lifting the corporate ______

    <p>veil</p> Signup and view all the answers

    The court has the power to disregard corporate entity if its used to escape from ______ obligations.

    <p>tax</p> Signup and view all the answers

    A company may be assumed as an ______ company when the persons who’s in control of its affairs resides in an enemy country.

    <p>enemy</p> Signup and view all the answers

    When a company is ______

    <p>fake</p> Signup and view all the answers

    If the company is used to avoid legal ______, the court may disregard the company

    <p>obligations</p> Signup and view all the answers

    Issue: whether the subsidiary was carrying on the business as the holding’s business or as its ______.

    <p>own</p> Signup and view all the answers

    The courts may lift the veil to protect the ______ policy and prevent transactions opposite to the public policy

    <p>public</p> Signup and view all the answers

    A company may act as an ______ of another company, based on the agency principle, the principal will be liable for the act of the company.

    <p>agent</p> Signup and view all the answers

    The company rejected on the grounds of that he wasn’t a ______, because the same person cannot be the employer and the employee.

    <p>worker</p> Signup and view all the answers

    The company is responsible for its own debt and not the ______ C- Company can contract with their members, directors and outsiders.

    <p>owner</p> Signup and view all the answers

    Salomon Vs. Salomon Case: Salomon started a small business of ______ making.

    <p>boot</p> Signup and view all the answers

    He asked his lawyer to make it ready, so 7 family members are now the ______.

    <p>shareholders</p> Signup and view all the answers

    Mr Macaura holds nearly all the shares of a company that dealt with timber, he insured the timbers in the insurance company BUT he did so in his own ______.

    <p>name</p> Signup and view all the answers

    The insured timber caught fire, so he asked the insurance company to pay him for that, but the insurance company told him that they’re not liable to pay him because the insurance that he bought was in his ______ and not the company’s name.

    <p>own</p> Signup and view all the answers

    Even if he holds all the shares, and that no one has any property in the assets of the company, the insurance company will not ______.

    <p>pay</p> Signup and view all the answers

    Earlier stated in Salomon case: Company’s debt is company’s ______.

    <p>debt</p> Signup and view all the answers

    The house of lords overturned the decision, 'it doesn't matter if he has most of the shares because of the 'separate legal entity' so they had to sue the company and not Salomon ______.

    <p>himself</p> Signup and view all the answers

    4 points that show incorporated companies have a separate legal personality: A- Company’s property is the company’s ______.

    <p>property</p> Signup and view all the answers

    What did Mr. Macaura hold nearly all of?

    <p>shares</p> Signup and view all the answers

    What was Salomon's initial business before it became a limited liability company (LLC)?

    <p>boot making</p> Signup and view all the answers

    How many family members became shareholders in Salomon's LLC?

    <p>7</p> Signup and view all the answers

    What was the outcome of the lower court's decision regarding Salomon's liability?

    <p>guilty and asked him to pay them back</p> Signup and view all the answers

    Study Notes

    Lifting the Corporate Veil

    • Lifting the corporate veil refers to the act of disregarding the separate legal entity of a company to identify the individuals behind it.
    • The corporate veil can be lifted under the following grounds:
      • For the benefit of revenue
      • Public interest
      • To identify the individuals controlling the company
      • To prevent fraud or injustice
      • To protect public policy
    • A company can be considered a 'sham' if it is used to avoid legal obligations or hide the true nature of the business.

    Salomon vs. Salomon Case

    • Salomon started a small business of boot making before it became a limited liability company (LLC).
    • 7 family members became shareholders in Salomon's LLC.
    • The lower court initially held Salomon personally liable for the company's debts.
    • The House of Lords overturned the decision, recognizing the company as a separate legal entity.

    Macaura Case

    • Mr. Macaura insured timber in his own name, leading to a legal dispute with the insurance company.
    • The insurance company refused to pay for the insured timber that caught fire, citing that the insurance policy was in Macaura's name, not the company's.
    • Mr. Macaura held nearly all the shares of the company that dealt with timber.
    • 4 points that show incorporated companies have a separate legal personality:
      • Company's property is the company's own.
      • Company's debts are the company's own.
      • Company can contract with its members, directors, and outsiders.
      • Company can sue and be sued in its own name.

    Enemy Company

    • A company can be assumed as an 'enemy company' if the persons controlling its affairs reside in an enemy country.

    Agency Principle

    • A company may act as an agent of another company, based on the agency principle, the principal will be liable for the act of the company.
    • The court may lift the veil to protect public policy and prevent transactions opposite to public policy.

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    Test your knowledge on the famous legal case of Salomon vs. Salomon, which established the principle of corporate personality. Explore the details of the case and its implications.

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