Concept of Incorporation of Veil Free Sample for Students

Questions: 1.How the Veil of Incorporation is an Important Concept Within the area of Company Law also discuss about the Lifting of Corporte Veil.2.Outline the Duties Owned by an Auditor of a Company. Answers: 1.Lifting corporate veil - Concept of incorporation of the company by registration was introduced during the period 1844 and in 1855 doctrine of limited liability was identified by law makers. Later, in 1897 UK case Salomon v. Salomon Ltd effect both the enactments and introduced twin concept of corporate entity and limited liability. In this case, House of Lords stated that an incorporated company is a distinct entity from its members. In other words, in the eyes of law company is a different person from its members which results in the concept of separate legal personality. This general principle also has an exception which was introduced in case law Salomon v. Salomon Ltd, and there are number of cases in which both Irish and UK courts stated that veil of company must be pierced or lifted. Court also stated that this general principle of distinct identity only apply when there was no fraud and agency. This general rule does not apply if the company was not real, and company was fi ction or Myth (CPD, n.d.; Law Teacher, n.d.). Court pierced corporate veil in very rare situation, and Court take this decision for the purpose of ensuring the enforcement of Court order. In case Dublin County Council v. Elton Homes Ltd. [1984] I.L.R.M. 297 at 300 (H.C.), Barrington J stated that injunction can be issued against the directors of the company and against the company itself would help in securing their cooperation. There is one more situation in which Court can lift the corporate veil and this is when there is relationship of agency between two companies. In other words, when one company is shows as independent company but in actual it is subsidiary of another company. In case Smith Stone Knight v Birmingham Corporation [1939]14 All ER 116, Court issue the list of six conditions for the purpose of determining the relation of agency between the alleged parent company and its subsidiary company. If all the conditions are satisfied then subsidiary company was not considered was not considered as separate legal personality in the eyes of law but it considered as agent of the holding company (ACCA, n.d.). Court further stated, if company does not fulfill its existing obligation then court can disregard the concept of separate legal personality of the company. In case Cummings v Stewart [1911]1 IR 236, license was transferred by defendant at the companys name for the purpose of avoiding the payment of royalties to the plaintiff. In this case, Meredith MR decided to lift the corporate veil and stated that it would be not acceptable if provisions of companies act would be used for destruction of legal obligations and for avoiding the enforceable claims. There were two cases Gilford Motor Company v Horne [1933]1 Ch 935 and Jones v Lipman [1962] 1 WLR 832, in which court stated that companies in these cases were a sham and faade respectively for breaching previous agreements. Judges observed that such cases include examples of fraud, and as a result there was need to enforce other laws also just piercing the corporate veil. There is one case which is considered as landmark in the company law that is DHN Food Distributors Ltd v Tower Hamlet London Borough Council [1976] 1 WLR 852, and in this case corporate veil was lifted by Court when it was found that companies are single economic entity. In this case, Lord Denning MR held that group of these companies are considered same as partnership group in which all three companies are partners, and in present situation all three companies are treated as one company. In Ireland, this concept of justice applied on single economic entities and has been alternatively accepted and rejected by the Courts. In case Power Supermarkets Ltd v Crumlin Investments Ltd et al (HC 1981), Costello J. stated that it is completely alright if for the purpose of justice Court treated two entities which are related with each other as a single entity, and it also stated the confirmation on the realities of economic and commercial situation. Different view was presented on this topic by The State (McInerney Co Limited) v Dublin County Council [1985]1ILRM 513 in which High Court does not accept the concept to treated two companies as single entity and Carroll J stated that corporate veil is not any tool which can accesed at the option of the parent company or group companies. Therefore, tool of corporate veil must be used only for justice. In case Allied Irish Coal Supplies Ltd v Powell Duffryn International Fuels Ltd [1998] 2 lR 519, supreme Court stated that financia l dependency between the subsidiary company and its parent company is not considered as strong evidence on the basis of which corporate veil can be lifted. This system was ended by English Courts in effective manner. In case, Adams v Cape Industries plc [1990] Ch 433, Slane LJ held Court cannot lift the corporate veil only on the fact that justice requires and in case Woolfson v Strathclyde Regional Council 1978] SC 90, the House of Lords rejected some conclusion concluded by Lord Denning. Therefore, this concept of separate legal personality is an important concept of Irish and English Company law. This statement is justified by case Maclaine Watson Company Ltd v Department of Trade and Industry (1989) 3 All ER 1056, in which House of Lord stated that decision of case Salomon v Salomon was equally important today as it was in 1897. Position of English law is clearer now, and some evidence related to fraud and impropriety must be considered before piercing the corporate veil. For this purpose, even the situations in the case shows that they are similar to the conditions of Salomon v Salomon, namely fraud and agency. In Ireland, there are number of cases which state the importance of legal personality, but in Irish Courts system related to justice is not followed and every case is deal in different way. 2.Duties of auditors in the company: an auditor is the independent qualified person who is appointed in the company for the purpose of providing independent, professional, and informed opinion to the shareholders of the company on the financial statement prepared by directors. An audit can also be conducted for the benefit of third parties who are wishing to engage in the business of the company for the purpose of checking the accuracy of the information provided by the company (ODCE, n.d.). Audit report- the most important duty of the auditor is to provide audit report to the members of the company, and report must include the true and fair opinion of the auditor on the state of affairs of the company and whether accounts of the company are prepared on the basis of provisions of the companies act, relevant legislations, and accounting standards. It is necessary that auditors report made available to every member of the company and must be read at Annual General meeting. In case if auditor is not able to give positive opinion, then they give qualified opinion, a disclaimer of opinion, and an adverse opinion. Report for any failure: in case auditor founds that company does not kept proper books of accounts then must inform their opinion to the company, and if directors of the company does not take any steps for the purpose of correcting this issue within seven days then auditors notify their opinion at the registration office of the company (ODCE, n.d.). References: ACCA, (2014). Lifting the Veil Of Incorporation. Available at: https://www.accaglobal.com/zm/en/technical-activities/technical-resources-search/2014/may/lifting-corporate-veil.html. Accessed on 27th march 2017. CPD. Company Law: Personal Liability for Corporate Debts, Lifting the Veil of Incorporation. Available at: https://www.cpdseminars.ie/articles/personal-liability-for-corporate-debts-lifting-the-veil-of-incorporation/. Accessed on 27th march 2017. Cummings v Stewart [1911]1 IR 236. Dublin County Council v. Elton Homes Ltd. [1984] I.L.R.M. 297 at 300 (H.C.). Gilford Motor Company v Horne [1933]1 Ch 935 and Jones v Lipman [1962] 1 WLR 832. Law Teacher. Lifting Of The Corporate Veil. Available at: https://www.lawteacher.net/free-law-essays/business-law/article-on-lifting-of-the-law-essays.php. Accessed on 27th march 2017. ODCE. Auditors Their duties and rights. Available at: https://www.odce.ie/Portals/0/Documents/Media%20and%20Publications/Publications/Quick%20Guides/Auditors_28_Aug_12.pdf. Accessed on 27th march 2017. ODCE. The Principal Duties and Powers of Auditors under the Companies Act. Available at: https://www.odce.ie/Portals/0/Information%20Booklets%202014%20Act/Auditors.pdf. Accessed on 27th march 2017. Salomon v. Salomon and Co. Ltd. (1897) A.C 22. Smith Stone Knight v Birmingham Corporation [1939]14 All ER 116.