Piercing Veil

A company is defined by S.2 of the Companies Act of Barbados as "A body corporate that is incorporated or continued under this act." Section 2 of the Jamaica Companies Act defined a company as "A company formed or incorporated under this act or an existing company."

In the eyes of the law, the company is regarded as a separate distinct person apart from its shareholders. For example, see the case of A.G. v. Antigua Times Ltd. where the court stated that "the term person includes the body corporate." See also the Interpretation Acts. Section 17 in the Barbados Companies Act provides that: -

"A company has the capacity and subject to this act, the rights, powers and privileges of an individual."

The decision cited as establishing the legal personality of the company is the House of Lords decision in the case of Salomon v. Salomon & Co. Ltd. In this case Salomon carried on business as a manufacturer of leather goods, he was a sole trader. Due to an increase in profitability he was advised to incorporate, he then created a limited liability company, which purchased the business. The company thereafter started to experience financial difficulties. Salomon gave the company a loan, which was secured with company assets. The company was forced into liquidation and Salomon claimed the assets of the company, which had been used to secure his loan, the liquidator and the other creditors objected to this. The House of lords unanimously reversed the decision of Vaughan Williams LJ and held that Salomon was under no liability to the company and its creditors that his debentures were validly issued, and his security over the company's assets were effective against the company and its other creditors. Lord MCNaghten stated in summing up a company's personality: -

"The company is at law a different person all together from the subscribers to the memorandum, and though it may be that after incorporation, the business is precisely the same as it was before and the same persons are the managers and the same hands receive profits, the company is not in law the agent of the subscribers or a trustee for them. Nor are the subscribers as members liable in anyway shape or form except to the extent and in the manner provided by the act."

The House of Lords held that no matter how large a proportion of the share capital is held by a shareholder, the company's assets, liabilities and rights were not those of it's controlling shareholders .

Application of the Doctrine