A COMPARATIVE ANALYSIS ON THE APPLICATION OF THE DOCTRINE OF SEPARATE LEGAL PERSONALITY TO PARENT/HOLDING COMPANIES AND ITS SUBSIDIARIES – THE UNITED KINGDOM, UNITED STATES AND NIGERIAN APPROACH

Introduction

The major effect of incorporation is that a company assumes a “separate legal personality” from that of its members. Thus, an incorporated company, like any natural person, has rights and liabilities enforceable by and against it, with no liabilities on members beyond what the law provides for, or what its Memorandum and Articles of Association allows. Hence, members, depending on the corporate form taken, assume either limited or unlimited liability rather than an unrestricted personal liability. In simple terms, a corporate veil is used to shield members from liability arising from the company’s
activities.

The rule is traceable to the case of Salomon v Salomon, and has been codified in various companies’ legislation. The application of this rule is, however, checked by courts and the legislature. Thus, in certain instances, the corporate veil is pierced to hold members liable where such members have used the company as a stratagem for achieving unscrupulous objectives. The big issue in modern corporate law is that holding or parent companies set up subsidiaries, which they control to shield themselves from liability. This is catastrophic for the innocent stakeholders dealing with such companies and their subsidiaries.

Hence, this paper seeks to examine the suitability of the judicial decisions and statutory provisions on piercing the veil to expose the intention of parent companies who utilize subsidiaries to perpetuate fraud or impropriety or to escape liability. This analysis will be by comparatively examining the legal position in the United States of America (USA), the United Kingdom (UK) and Nigeria, under the new Companies and Allied Matters Act 2020. The company laws in these jurisdictions have all codified the rule in Salomon v Salomon.

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UNILAG Law Review, (2021) Volume 5 Edition 1.