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Published: Fri, 02 Feb 2018
When company becomes registered it becomes separate legal entity
Discuss the concept of the separate legal personality of the registered company, and, with reference to relevant case law, discuss the circumstances in which the courts have shown themselves willing to disregard this principle and have been prepared to ‘lift the veil of incorporation.’
Your essay should include discussion of at least two cases from the last five years which were not discussed in the lecture.
When a company becomes registered it becomes a separate legal entity when a company incorporates it gains the identity of a unique entity which is isolated from its shareholders’. Although there are several consequences which flow from this as a company is liable for its own debts, as shareholders or members of the company can’t be sued by its creditors.
In the case of Salomon v Salomon & Co Ltd 1897 AC22 , which strongly establishes the idea of a separate legal personality of a company the company is entirely isolated from Mr Salomon, and the courts identified there could be circumstances where the courts would stray from the principle of a separate legal personality, this is only held on the assumption that the company ios found to be genuine and no fraud has occurred, as indicated by Lord Macnaghton, “The company is at law a different person altogether from the subscribers to the memorandum; the company is not at law the agent of the subscribers or trustees for them. Nor are the subscribers liable”
Another Consequence is of Limited Liability, A separate legal personality, members liability are only limited by guarantee or shares. Also when a company owns its own property the shares holders have no direct right to this, in Macaura v Northern Assurance Co 1925 AC619 Macaura transferred timber from his estate to his company, and took out insurance with his own name rather than company name then the timber was destroyed in a fire. He had timber with insurance in the supply chain, this means higher risk is attached when insurance is involved.
A company could be vicariously liable within a delict, this could be because of the actions of directors and employees, however, this is only the case if they are done within the scope of business. For companies which are incorporated after the Companies Act 2006 they have full contractual capacity unless they are restricted by articles. A company can also commit and be convicted of a crime regardless of whether it is directors or employees , with the understanding that it was undertaken within the course of company operations. With a crime of strict liability which is entirely statutory, if the crime has been done and there is proof, the culprit is fully liable even if they were not aware of this. Within Common law it is difficult to establish ‘mens rea’
Salamon v Salamom
Under Companies Act 2006, Chapter 47, Part 2, Section 7 (1)A company is formed under this Act by one or more persons (a) subscribing their names to a memorandum of association (see section 8), and (b)complying with the requirements of this Act as to registration (see sections 9 to 13). (2)A company may not be so formed for an unlawful purpose
Separate legal personality and limited liability are not the same thing.
Corporate personality refers to the fact that, as far as the law is concerned, a company
really exists. This means that a company can sue and be sued in its own name, hold its own
property and – crucially – be liable for its own debts. It is this concept that allows limited
liability for shareholders as the debts belong to the legal entity of the company and not to
the shareholders in that company.
The history of corporate personality
Corporate legal personality arose from the activities of organisations, such as religious
orders and local authorities, which were granted rights by the government to hold
property, sue and be sued in their own right and not to have to rely on the rights of
the members behind the organisation. Over time the concept began to be applied to
commercial ventures with a public interest element, such as rail building ventures and
colonial trading businesses. However, modern company law only began in the midnineteenth century when a series of Companies Acts were passed which allowed ordinary
individuals to form registered companies with limited liability. The way in which corporate
personality and limited liability link together is best expressed by examining the key cases.
The separate corporate personality operates as a shield – the courts will not normally look beyond the façade at the shareholders. Parent and subsidiary companies will normally be viewed as separate legal persons.
established the principle of the separate legal personality of a company, i.e. that a company, once incorporated, is a legal person in its own right and is to be regarded as a separate entity from its members. The court in that case did, however, recognise that there could be instances
kensington international ltd v congo ewhc 2684
-dilligence, when you have a right to money, from debtors to place
Because of diligence he needs money back, and many companies are formed
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