Essay on Business Law

Words: 1964
Pages: 8

Business Law

“The doctrine laid down in Salomon v Salomon & Co Ltd [1897] AC 22 has to be watched very carefully. It has often been supposed to cast a veil on the personality of a limited company through which the courts cannot see. But that is not true. The courts can, and often do, draw aside the veil. They can, and often do, pull off the mark. They look to see what really lies behind” - Lord Denning in Littlewoods Mail Order Stores v Inland revenue Commissioners [1969] 3 All ER 422.

“Law is order, and good law is good order” - Aristotle 343 BC
Incorporation is the act of a business achieving a separate corporate personality from that of its owners. When a company is a separate legal identity to its owners it is
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Littlewoods and its landlords, the Oddfellows, entered into an arrangement for a wholly owned subsidiary of Littlewoods called Fork Manufacturing Co. Ltd to acquire the freehold of the building in such a way that the purchase price could be treated, for tax purposes, as an operating expense. Fork then bought the freehold from the Oddfellows, paying for it by assigning the lease to the Oddfellows. The issue was whether Littlewoods could deduct the increased element of the rent in computing its taxable profits. The court held that Fork was not a separate and independent entity, the extra rent was to enable Littlewoods to acquire freehold, and so the rent was not deductible. (Hicks, Goo, 2008, P.106)
Other examples of ‘lifting the veil of incorporation’ are fairly common with businesses. Sometimes, the courts themselves have taken the initiative. Instances of how a company can do this are when the company is set up as a ‘cloak’ or a ‘sham’ with the dishonest purpose of evading the promoter/shareholder’s existing obligations. In Jones v Lipman [1962], Lipman contracted to sell land to Jones, but then changed his mind. He set up a company to which he sold the land. He knew that he would be liable to Jones for damages, but he hoped that ‘his’ company, as a separate person would be able to keep the land. The court ordered both him and the company to transfer the land as originally agreed. (Marsh, Soulsby, 2002, P.233)
Where tax fraud is