Business Law Case Study: Analyzing Corporate Law Principles

This case study delves into the core concepts of corporate liability and the corporate veil within the realm of business law. It begins by exploring the legal principle that a company is a separate legal entity, distinct from its owners, and the implications this has on corporate liability. The study examines the landmark case of Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd, which established that a company can be held liable through the actions of its directing mind. The analysis then transitions to the corporate veil, discussing its function and the circumstances under which it may be pierced or lifted, as illustrated by cases like Salomon v A Salomon & Co Ltd and Adams v Cape Industries plc. The study clarifies that courts are generally hesitant to disregard the corporate veil, except in cases of fraud or to circumvent existing legal obligations. It also touches upon the more recent case of Prest v Petrodel Resources Ltd, which suggests a potential for the corporate veil to be lifted in specific situations. The assignment concludes with a bibliography of relevant legal cases.

Running head: BUSINESS LAW
Business Law
Name of the student
Name of the university
Author note

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BUSINESS LAW
Answer 1
The company is a separate legal entity which has no mind of its own to operate as it is an
artificial legal person. The company is not a living organism does it does not have any brains to
make decisions for its own. Therefore there are certain individuals who have been appointed to
take care of the operations of the company with respect to the authority provided to them. Thus
corporate liability is determined through the position of the person in to organization which
respect to directing mind and will of the organization. The concept was initially discussed in the
case of Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705. In this case
the court had to determine whether the owner of a ship may be held liable in relation to the loss
suffered by the cargo on the ship because of the ship being navigated negligently. The court in
this case held that a person whose negligence can be identified as the negligence of the
organization itself is liable to the organization according to the doctrine of diverting kind and
will. The court in the case of Daimler Co Ltd v Continental Tyre and Rubber Co (Great
Britain) Ltd [1916] 2 AC 307 ruled that the place of operation of the company is the place
where the people directing mind and will of the company operate.
Answer 2
When a company is incorporated going through the appropriate process of incorporation it
becomes a separate legal person and its identity is distinguished from its owners. However as an
organization is not a natural person it cannot make its own decisions and the duty to do so has
been imposed on its members and directors. These members and directors can act in such a way
so as to cause harm to the creditors and other stakeholders of the company financially. Therefore
there has been significant debate over the issue that whether the corporate veil in relation to a

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BUSINESS LAW
company should be pierced or lifted. The landmark case in relation to the corporate veil is the
case of Salomon v A Salomon & Co Ltd [1896] UKHL. In this case it was held by the court that
the corporate veil cannot be processed nearly in the arms of justice or to provide equity to the
creditors and stakeholders of the company. In the case of Adams v Cape Industries plc [1990]
Ch 433 it was clearly provided by the court that the court does not have any authority to Pierce
or lift the corporate veil of a company accept in the only circumstances when the company has
been formed for a purpose which is fraudulent all the only motive behind the formation is to get
rid of an existing application. In the case of Prest v Petrodel Resources Ltd [2013] UKSC 34
however it was said by the judge that the corporate veil may be lifted sometimes in the hands of
Justice. Generally the judge would only leave the corporate veil of a company if they are
satisfied that the company has been formed for a fraudulent purpose.
Bibliography
Adams v Cape Industries plc [1990] Ch 433
Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd [1916] 2 AC 307
Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705
Prest v Petrodel Resources Ltd [2013] UKSC 34
Salomon v A Salomon & Co Ltd [1896] UKHL