Limited Liability in Group Companies

Corporate groups can be defined as a company structure where several companies are interconnected by means of contract shareholding or as Dine says, By betrothal dictatorships. In these structure holding companies usually curb experience and influence over subsidiaries. Limited obligation on the new(prenominal) hand, is the logical consequence of the existence of a separate legal entity or generally, the concept simply means that since the company is different from the shareholders, the members are only liable for the amount unpaid or their shares and not for the debts of the company When limited liability is easily and cheaply ready(prenominal) can be explained as removing unnecessary legal forbid which can be an inhibition to progress of economic natural process and it can give to new forms of abuses of people in realize of running corporate groups and they include the following: There is onerous in attaching liability to a cite company and decisions of courts acquire shown that attaching liability to a parent is difficult even where the acts of the parent company are visible.

In the case of Kleinwort Berson V Malaysia minelaying corporation (1898) 1 All ER 1789(Court of Appeal) the parent issued sympathiser letters to the subsidiary undertaking to meet any debt liability of subsidiary on liquidation but attempts to rely on this letters by creditors to recover failed as court held they werent legally binding on the parent. In Lindgner V set ashore P Estates, the court held that directors of a parent company have no duties to protect the subsidiaries where the subsidiaries have independent bodies while in Smith store and Knight Ltd Birmingham Co.(1939) 4 All ER 116, the court allowed the company to collect compensation on behalf of the subsidiary. In K, the parent avoided its obligation while in Smith, the parent benefitted from what commonly should have accrued to the subsidiary. Secondly, there can be double-tongued transfer of assets and fake companies: It is argued that because of the rule,... If you want to get a just essay, order it on our website: Ordercustompaper.com

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