Corporate Personality: Key Principles, Exceptions and Cases

Introduction

Corporate personality treats a company as a person in law, separate from its shareholders and directors. Once incorporated under the Companies Act, a company can own property, enter contracts, sue and be sued, and continue despite changes in ownership. Shareholders usually risk only what they invest, and directors act as agents of the company rather than owners.

This guide sets out the core rules, the narrow situations where courts may disregard the separate entity, how the principle operates in corporate groups, and what it means for directors and litigation. Key cases anchor each point so you can apply the law with confidence.

What You’ll Learn

• The meaning and consequences of separate legal personality
• How limited liability works and its limits
• Who owns company assets and who has an insurable interest
• When courts may pierce the corporate veil (and when they will not)
• How separate personality plays out in corporate groups
• Directors’ duties to the company and wrongful trading risks
• When a company can sue for defamation
• Practical steps to preserve separation and manage risk in deals, disputes, and governance

Core Concepts

Separate Legal Personality and Limited Liability

• On incorporation, a company becomes a distinct legal entity. The classic authority is Salomon v A Salomon & Co Ltd [1897] AC 22, which confirms that even a one-person company is separate from its owner.
• Limited liability flows from this separation: shareholders are generally liable only up to the amount unpaid on their shares (or any separate guarantees). Personal assets are not available to satisfy company debts unless specific commitments have been made or exceptional doctrines apply.
• Practical consequences include perpetual succession, the company’s ability to litigate and be sued in its own name, and the need to keep corporate acts and records separate from personal affairs.

Ownership, Insurance and Contracting with Controllers

• Ownership of assets: The company owns its property, not the shareholders. In Macaura v Northern Assurance Ltd [1925] AC 619, a shareholder could not recover under his personal insurance policy for timber owned by the company because he had no insurable interest in the company’s assets.
• Contracts with controllers: A company can contract with its directors and even employ a controlling shareholder. Lee v Lee’s Air Farming [1961] AC 12 confirms that the company and the individual are separate legal persons capable of making binding arrangements.

Veil Piercing: When the Court Disregards Separation

• Piercing the corporate veil is rare and a last resort. In Prest v Petrodel Resources Ltd [2013] UKSC 34, the Supreme Court explained that:
  • The “evasion principle” may justify veil piercing where a company is interposed to defeat or frustrate an existing legal obligation.
  • The “concealment principle” does not pierce the veil; the court simply looks through the structure to find the true facts using ordinary legal tools (e.g., agency, trust, statutory powers).
• Jones v Lipman [1962] 1 WLR 832 shows a classic evasion case: the defendant formed a company to avoid completing a land sale. The court ordered specific performance against both the individual and the company.

Groups of Companies: Separation, Agency and Attribution

• Each company in a group is separate. Adams v Cape Industries plc [1990] 2 WLR 659 confirms that arranging a group so liabilities sit in a particular entity is not, by itself, a reason to pierce the veil.
• Early suggestions that a group could be treated as a single entity (DHN Food Distributors Ltd v Tower Hamlets LBC [1976] 1 WLR 852) were curtailed by Woolfson v Strathclyde Regional Council 1978 SLT 159. The modern position respects separateness unless specific legal grounds apply.
• Practical examples of separateness:
  • Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627: documents held by a subsidiary were not ordered for disclosure in proceedings against the parent.
  • Invest Bank PSC v El‑Husseini [2022] EWHC 894 (Comm): transactions of a company are not automatically attributable to its controlling individual.
  • Williams v Natural Life Health Foods Ltd [1998] 1 WLR 83: a director is not personally liable for company statements unless they personally assume responsibility to the claimant.

Directors, Duties and Wrongful Trading

• Directors are agents of the company and owe their duties to the company, not to individual shareholders: Companies Act 2006, s170(1).
• The standard of care is objective and contextual. Re Produce Marketing Consortium Ltd [1989] BCLC 520 indicates that courts consider both what a director knew and what they ought reasonably to have known in the circumstances.
• Wrongful trading claims can arise where directors allow a company to trade on when there is no reasonable prospect of avoiding insolvent liquidation. In Brooks v Armstrong [2017] BCC 99 and Biscoe v Milner [2021] EWHC 763 (Ch), the courts clarified aspects of causation and loss, confirming potential liability even if not every creditor suffers loss.

Corporate Reputation and Litigation

• A company can sue for defamation. Jameel v Wall Street Journal Europe sprl [2007] 1 AC 359 confirms that a company’s reputation can be protected through defamation proceedings.
• Today, this sits alongside the Defamation Act 2013, s1, which requires “serious harm” to reputation. For bodies trading for profit, serious financial loss must be shown.

Key Examples or Case Studies

Salomon v A Salomon & Co Ltd [1897] AC 22

• Context: Mr Salomon owned almost all the shares and debentures in his company.
• Principle: Upon incorporation, the company became separate from Mr Salomon; its debts were not his.
• Application: Do not assume personal liability just because an owner controls the company; look for separate guarantees or wrongdoing before pursuing the individual.

Macaura v Northern Assurance Ltd [1925] AC 619

• Context: A shareholder insured timber in his own name; the timber was owned by the company.
• Principle: Shareholders lack an insurable interest in company assets.
• Application: Place insurance and title documents in the company’s name for company property.

Lee v Lee’s Air Farming [1961] AC 12

• Context: Sole director/major shareholder also employed by the company.
• Principle: The company and controller are separate; valid employment arrangements can exist.
• Application: Employment, consultancy and service contracts with controllers are possible if properly documented and approved.

Jones v Lipman [1962] 1 WLR 832

• Context: A company was formed to avoid completing a contract for sale of land.
• Principle: The court can disregard the corporate form used as a device to evade an existing obligation.
• Application: Where a company is used to dodge a binding commitment, expect targeted relief against both the individual and the company.

Prest v Petrodel Resources Ltd [2013] UKSC 34

• Context: Divorce proceedings involving assets held via companies.
• Principle: Veil piercing is a last resort under the “evasion principle”; often, ordinary property and trust analysis resolves the case.
• Application: Consider trusts, agency and disclosure orders first; veil piercing will be rare.

Adams v Cape Industries plc [1990] 2 WLR 659

• Context: Liability sought against a UK parent for the acts of US affiliates.
• Principle: A lawful group structure that limits exposure is acceptable; no veil piercing absent evasion or other legal basis.
• Application: If you need parent company recourse, negotiate guarantees or security; do not rely on a court to treat the group as one entity.

Williams v Natural Life Health Foods Ltd [1998] 1 WLR 83

• Context: Claimants relied on brochures; company collapsed; director sued personally.
• Principle: A director is personally liable only if they assumed responsibility directly to the claimant.
• Application: Use clear corporate branding and engagement letters to avoid personal assumptions of responsibility.

Jameel v Wall Street Journal Europe sprl [2007] 1 AC 359

• Context: A company brought a defamation claim.
• Principle: Companies can sue to protect reputation; modern claims must meet the Defamation Act 2013 serious harm threshold.
• Application: Corporate claimants should gather evidence of serious financial loss early.

Practical Applications

• Preserve separateness

  • Keep distinct bank accounts, accounting records, stationery, websites and signage.
  • Record board decisions and shareholder resolutions.
  • Avoid personal use of company assets and vice versa.

• Document relationships with controllers

  • Put employment, consultancy and loan agreements with directors/shareholders in writing.
  • Obtain proper board approval and manage conflicts according to the Articles and the Companies Act 2006.
  • Ensure remuneration and related‑party transactions are transparent and on arm’s‑length terms.

• Get ownership and insurance right

  • Title, invoices and insurance for company property should be in the company’s name.
  • Review policies to confirm the correct insured party and accurate descriptions of risk.

• Manage group risk

  • Do not assume the parent will be liable: obtain guarantees, security or letters of support where needed.
  • Use intercompany agreements for services, licensing, and funding; price and document transfers properly.
  • Maintain separate governance, records and decision‑making in each entity.

• Reduce veil‑piercing risk

  • Do not use new entities to sidestep existing obligations; fulfil contracts or negotiate releases.
  • Keep accurate records showing proper commercial reasons for any restructuring.

• Directors: act early in distress

  • Monitor cash flow and creditor positions; keep detailed board minutes.
  • Take professional advice if insolvency risks arise; consider trading cessation or a formal process.
  • Avoid selective payments that worsen creditor positions without justification.

• Litigation strategy

  • For claimants: identify the correct defendant; consider agency, trust, guarantees and statutory routes before alleging veil piercing.
  • For defendants: evidence the reality of separate entities and commercial purpose; resist attempts to conflate group members.
  • Defamation: companies should assess the serious harm test and quantify loss promptly.

Summary Checklist

• Separate legal personality applies from incorporation (Salomon).
• Shareholders do not own company assets (Macaura); insure in the right name.
• A company can contract with and employ its controllers (Lee).
• Veil piercing is rare: used only to prevent evasion of an existing obligation (Prest; Jones v Lipman).
• Group companies remain separate unless specific legal grounds apply (Adams; Woolfson).
• Directors’ duties run to the company (s170(1) CA 2006); maintain skill and care (Re Produce Marketing).
• Wrongful trading liability can arise if trading continues with no reasonable prospect of avoiding insolvent liquidation (Brooks; Biscoe).
• Companies can sue for defamation, subject to the serious harm threshold (Jameel; Defamation Act 2013).

Quick Reference