Overview of liability among shareholders, directors, and officers
It has been specifically founded that all the shareholders, directors and officers of a corporation were regarded as the individuals who were subject to certain particular liabilities towards each other. But in some situations, people were observed to restrict and limit the liability of all the executives who were mentioned above in order to make sure that it was competent to carry out the trade without the consistent danger of a lawful proceeding. At the same time, these individuals were also liable towards each other (Dutilh, 2013).
As previously it was believed that the company or organization itself had a very restricted and limited set of liabilities but in certain matters it was stated that those liabilities could only be civil in its nature (National Paralegal, 2017).
So, as far as tort law was concern, usually a corporation has certain degree of liability for the torts which were committed by its directors and its workers during the course of their service. On this basis it was concluded in Greenfield v. Colonial Stores, Inc., 110 Ga. App. 572 (Ga. Ct of App. 1964) that the universal rule as to a corporation’s tort liability has been founded previously which confirms and classically avoid the liability of a corporation for the deliberate torts carried out on the part of its directors or workers but may be lawfully accountable for theinvoluntarytortious acts which were committed by a worker. As a result it was also affirmed that if the deliberate tort was predictable towards the corporate directors or if the company accepted the advantages of the commission of the tort then in such cases the company or the corporation would specifically be held responsible even for a tort which were conducted intentionally by a worker (Schweizer Kobras, 2017).
Though, the basic feature of a company was that it has a corporate legal entity from its members. So, it was affirmed in the case of Salomon v A Salomon & Co Ltd [1897] AC 22 with regard to the concept of separate legal entity that as per the concept of the one individual or private corporation it has been observed that whereby a trade was controlled by a person then it could be incorporated as a limited liability corporation that has a separate legal entity from its shareholders. As a result, it was concluded that the shareholders were being protected from the assertions.
Also,according to the exceptional concept of lifting up of corporate veil which was founded in the Solomon case wherein the tribunals have acknowledged that the corporate veil of a corporation may be penetrated in order to repudiate shareholders the security and protection (Taylor Wessing, 2016).
Limited liability and the lifting of the corporate veil
In another case ofH L Bolton & Co v T J Graham & Sons [1957] 1 QB 159 and Microsoft Corporation v Auschina Polaris Pty Ltd [1996-7] 142 ALR 111 wherein it was stated that the directors of a corporation were often regarded as the will and mind of the corporation. But if one trails the logic then it could be affirmed that they were not personally accountable for their own acts as their acts were the corporate acts. This was because of the idea of a business act not because of restricted accountability which was applicable precisely to the shareholder but to the directors. On the other hand, it was concluded that they were the mediator of the organization and could be individually accountable for their own acts under tort.
As it was due to the doctrine of limited liability as a result of which it has been stated that, “shareholders were observed to being vulnerable and protected from any personal liability which arise for the business debts and torts further than the sum of their approved reserves which were made in the stocks of the corporation.” As at the centre, the concept of Limited liability was defined as a method of securing the shareholders from the assertions against the organization in which the shareholders have advanced their funds.
Also, inK.M.C. Co. v. Irving Trust Co., 757 F.2d 752, 758–63 (6th Cir. 1985) it was held that further thanthe people who were shareholders of a corporation, there were also other corporate stakeholders who may be influenced in order to be held entirely or partly liable such as creditors, directors, and officers.
So, at the end it could be stated that the company would be liable to its shareholders for the wrongful acts if it ash been done by them as per the share which they invested. Same with the case of the workers, the directors or the shareholders as they were the agents of the company who works for the corporation or carry out corporate acts.
A corporation has been defined as a separate lawful entity which was measured as a lawfulindividualdistinct to those who were carrying out trade within the corporation. An organization may or may not consequently be accountable if offences were done by people who were asserting to perform in its forename. So, for shaping whether a corporation was found responsible of an offence relies on the building of the wrongdoing and the way by which, for any provided offence then for such cases the concept of corporate criminal liability could be determined.
Tort liability of corporations and individuals
But the unlawful accountability of an organization, as it was defined to be separate from its workers or executives, cascades to be resolute under the common law rules. As under the unique common law, a corporation could not be imprisoned for any unlawful act. The ordinary criminal law also carried the position by stating that, in common it could be confirmed that there could be no vicarious criminal legal duty under which it could be stated that an individual could not be considered to be found mortified of a unlawful crime which was dedicated by another individual (Hall & Wilcox, 2016). But in the 19th century, it has been affirmed that there has been certain general statutory exceptions which were found to the vicarious legal accountability principle which was led also to constitutional exceptions to the rule against the unlawful legal duty of organizations, and to common law exceptions where the companies had been unsuccessful to carry out a constitutional obligation for making a common law irritation. For a numerous number of reasons, not least misunderstanding about the main beliefs leading key corporate criminal accountability, the principles of the universal criminal law have certainly not truthfully dazed free from the previous foundations (Laufer, 2008).
As for a number of other crimes, including all of the other individuals to which the laws for the criminal liability would apply. But in this regard, there have been two lawful principles by which a corporation could be impeached for criminal wrongdoings such as:
- Vicarious liability, which was applicable universally in relation to all the offences where there, was no obligation in order to verify any psychological constituent.
- Non-vicarious liability, which could be applicable under the “documentation principle” to wrongdoings that comprises of a psychological constituent inclusive of intention, duplicity or data within their meaning(Hill, 2003).
Initially, there have been principles of vicarious liabilityin civil law, wherein it was stated that an employer was legally responsible for numerousnumber of acts of any worker. But criminal law has usually accepted theboulevard of blame acknowledgment in a restricted range of strict liability offences (Net Lawman, 2017).
But in general, the procedure of legal understanding of the constitutional entity which led to corporate accountability for being forced only for the supervisory crimes, chiefly those offences which did not necessitate which was regarded as a proof of mens rea or a psychological constituent(Goode, 2017). While the universal belief states that a corporation could be impeached for a criminal act which has been established previously, the question if a specific act which executes such legal responsibility and whether the explicit or recognition doctrine which would apply, and wasinfrequently accepted if it was ever spelled out, and the procedure of interpretation was thus on-going (Practical Law, 2013).
Concept of vicarious liability
But in the criminal sphere, such principles were seen tobecome the foundation for the identification principle, which principally meant to be known assuch a corporation whichwould be accountable for a more stringent criminal crime where one of its most senior people were seen to had been observed to have acted with the necessity fault (Thompson, 2017). But it has been propoundedin the leading matter of Tesco v Nattrass (1972) that this restricted the pertinentemployees in order to those at the centre of corporate power. This identification theory was established from a number of fraud related matters and it patent the acknowledgment of the companies as accomplished of committing offences which were in a need of a evidence of a mental constituents (Allens, 2017).
Also, in a recent case of Prince Alfred College Incorporated v ADC [2016] HCA 37it was concluded by the high Court of Australia by considering that there have been certain situations in which an employer was held vicariously liable for the criminal acts of a worker.
So, it has been concluded at the end that the major principle on the basis of which the court held or found the corporation guilty was basically the principle of vicarious liability.
References
Allens. (2017) Corporate criminal liability.[Online] Allens. Available from:https://www.allens.com.au/pubs/pdf/ibo/CorporateCriminalLiabilityPublication_2016.pdf [Accessed on 13/3/17]
Dutilh, N. (2013) Shareholder liability.[Online] Lexology. Available from: https://www.lexology.com/library/detail.aspx?g=0d3623d5-2452-49cb-bd57-40a934678bb7 [Accessed on 13/3/17]
Goode, M. (2017) CORPORATE CRIMINAL LIABILITY.[Online] Australian Institute of Criminology. Available from:https://www.aic.gov.au/media_library/publications/proceedings/26/goode.pdf [Accessed on 13/3/17]
Hall & Wilcox. (2016) Vicarious Liability for Criminal Acts.[Online] Lexology. Available from: https://www.lexology.com/library/detail.aspx?g=6241a6b9-3947-45ce-bb58-1b70d3a43d72 [Accessed on 13/3/17]
Hill, J.G. (2003) Corporate Criminal Liability in Australia: An Evolving Corporate Governance Technique?. Journal of Business Law, p. 1.
Laufer, W.S. (2008)Corporate bodies and guilty minds: The failure of corporate criminal liability. University of Chicago Press.
National Paralegal. (2017) Liability of the Corporation.[Online] National Paralegal. Available from:https://nationalparalegal.edu/public_documents/courseware_asp_files/businessLaw/CorpotationForm&Features/LiabilityCorporation.asp [Accessed on 13/3/17]
Net Lawman. (2017)Vicarious Liability.[Online] Net Lawman. Available from: https://www.netlawman.com.au/ia/vicarious-liability-australia [Accessed on 13/3/17]
Practical Law. (2013) Corporate criminal liability in the UK: the introduction of deferred prosecution agreements, proposals for further change, and the consequences for officers and senior managers.[Online] Practical Law. Available from:https://uk.practicallaw.com/4-547-9466?q=&qp=&qo=&qe= [Accessed on 13/3/17]
Schweizer Kobras. (2017) Corporate Law.[Online] Schweizer Kobras. Available from: https://www.schweizer.com.au/articles/Corporate_Law_(SK00079638).pdf [Accessed on 13/3/17]
Taylor Wessing. (2016) Corporate Liability: What exactly does it mean to prove a company ‘guilty’?.[Online] Taylor Wessing. Available from:https://united-kingdom.taylorwessing.com/en/corporate-liability-what-exactly-does-it-mean-to-prove-a-company-guilty [Accessed on 13/3/17]
Thompson, S. (2017) When Is a Corporation Guilty of Crime?.[Online] Chron. Available from: https://smallbusiness.chron.com/corporation-guilty-crime-70684.html[Accessed on 13/3/17]
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