The Corporate Veil in the UK and US Coursework Example | Topics and Well Written Essays - 3750 words

The Corporate Veil in the UK and US - Coursework Example Salomon quotes have been repeated many times over history, and it is described by Lord Templeman as an â€Å"unyielding rock†,7 especially after its being codified in the Companies Act 2006 in section 16(2). But how does the corporate veil affect corporate governance? What are the consequences of the veil, especially when it is lifted? Have directors been able to use the veil to commit fraudulent activities, or have shareholders’ rights been made stronger? It is important to first examine the concept of corporate governance, in particular in relation to directors and shareholder’s rights. Shareholder Rights and Directors in Corporate Governance Shareholders are defined as the investors in the company; they are often described to have considerable amounts of power to elect and even remove directors from the board, although it will be shown below that this is not actually the case anymore because their rights have been greatly reduced. On the other hand, the direct ors are the upper most governing body of the company, although they are restricted in many ways by way of their directors’ duties to act in the best interests of the company and to promote the business as a whole. Directors create and put into action the company’s policies and manage the actions and interactions of the company. Shareholders also possess some non-financial rights, especially in relation to the protection of their invested shares. Shareholders, as well as vote to appoint and remove directors, can also have an effect on the laws of the company, and change directors’ acts so they act according to the company laws, or articles of association. This does not mean that shareholders have a lot of power over the company generally, but their ability to vote does give them some importance and... The paper tells that corporate Governance principles have a big effect on the aspect of the corporate veil. The company structure which separates the power contained by directors in their managing roles and the ownership in the hands of the shareholders has caused problems as to how the corporate veil can affect corporate governance. How can directors be made properly accountable to the shareholders, and does this improve corporate governance? Davies terms this as â€Å"the quest for stockholder democracy†, and says the apparent simple solution of improving levels of democracy and increasing accountability in the corporate structure is difficult to apply in reality. It is suggested that increased participation of shareholders is difficult and maybe not even desirable because it makes decision making more difficult to achieve. It is said that the corporate governance principles in the US are more a result of â€Å"path-dependent history than the ‘natural’ result o f an inevitable evolution toward greater efficiency†. Yet it has been said that the UK system of separate ownership prevents corporate governance from being monitored properly. Such critics say that a more central application of corporate governance is needed, so that it can be more objective and can be implemented more quickly. Shareholders are also not willing in many cases to start litigation when fraud or abuse has happened, because of the costs of litigation that directors often have little trouble of paying but which shareholders may have problems financing in the UK.