ExpertMedium2 marksMultiple Choice
The formation and constitution of business organisationsThe formation and constitution of business organisationsCorporate personality
ACCA · Question 11 · The formation and constitution of business organisations
Section A
In which of the following situations will the courts 'lift the corporate veil' at common law?
Section A
In which of the following situations will the courts 'lift the corporate veil' at common law?
Answer options:
A.
Where the company is a wholly-owned subsidiary of a parent company.
B.
Where the company is used as a mere facade to evade an existing legal obligation.
C.
Where the company directors have made poor business decisions leading to insolvency.
D.
Where the company has only one shareholder who is also the sole director.
How to approach this question
Recall the strict limitations on lifting the corporate veil at common law following cases like Adams v Cape Industries and Prest v Petrodel.
Full Answer
B.Where the company is used as a mere facade to evade an existing legal obligation.✓ Correct
The principle of separate corporate personality (Salomon v Salomon) is strictly upheld. At common law, the veil is only lifted where the company is a 'sham' or 'facade' deliberately used to evade an existing legal obligation or conceal the true facts (the evasion principle).
Common mistakes
Believing the veil can be lifted simply in the interests of justice or because a parent company controls a subsidiary.
Practice the full ACCA LW — Corporate and Business Law Practice Exam 6
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