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The principle of corporate legal personality was used by religious organizations, before it became a key principle of company law, to hold property in their own rights. With time, this principle was approved by the parliament in 1844 when it passed the joint stock companies act. The development of the principle of corporate personality during that time gave rise to many common law developments like the changing of legal conception of a share. These changes were reflected by the companies act 1862 as the act introduced a new wording in s.6 which implicitly described a registered company as being separate from that of its members by providing that members may form an incorporated company. There were some commercial developments too which changed the legal and functional nature of the company form. But it was not until Solomon’s case at the end of the 19th century that the concept of corporate personality was fully established. Since then it is being followed till the present date but the way it has been followed has taken many different approaches. The period between 1897-1996 was the period where the courts tried the different approaches to the doctrine keeping in mind the decision of the house of lords in the case of Solomon v. Solomon. This was the period of early experimentation with the doctrine of corporate personality.
Then came the period where the doctrine of veil lifting was encouraged which changed the rules of Solomon’s case. This was the period from 1966 to 1989. Lord Denning in Littlewoods Mailstores v IRC stated that “the doctrine laid down in Soloman’s case has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the courts cannot see. But that was not true. The courts could, and they often did, pull off the mask.”
This was the period where the courts began to disfavor the doctrine of Corporate Legal personality by often lifting the veil of the corporation. This continued erosion of the doctrine of corporate personality created uncertainty over the virtues of incorporation.
From 1989 to the present date, the courts moved back to the strict legal approach in Solomon’s case and began to discourage the doctrine of veil lifting keeping the rules of Solomon’s case intact. Woolfson v. Strathclyde, Regional Council is the famous case which began to disapprove veil lifting and in that case, “Lord Keith stated that the only situation where a corporate veil could be lifted was where there are special circumstances indicating that the company is a ‘mere facade concealing the true facts.’ Thus, the English Courts after the judgment of the Court of Appeal in Adams v. Cape Industries started to take a very narrow view of the doctrine of veil lifting.”
It was always clear that the courts were not interested in challenging the decision of the House of Lords in Solomon’s case. Therefore, the principle of corporate personality remains the ground upon which modern company law is based. The importance of the principle of corporate personality lies in the consequences that flow from it.
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