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Cama Remix

Cama Remix

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Published by Ishaya Amaza

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Categories:Types, Research, Law
Published by: Ishaya Amaza on Dec 16, 2010
Copyright:Attribution Non-commercial

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IntroductionThroughout history, corporate form has functioned as the most appropriatemedium to organize and distribute huge capital.
1
 
Since its birth, corporationshave offered some vital features such as limited liability, transferability of sharesand separate legal entity. These featureshavedistinguished corporationsfrom other forms of business such as partnership or joint stock company. Perhaps thisis better said by M. M. Blair, 
“... [A]nother critical feature of the corporate form that made it the preferred way of organizing large, complex businesses was that a corporation is a separate legal entity with potentially perpetual life, and is the legal owner of the assets used in the business.Holding the property in corporate form rather than in a partnership or joint stock company made it easier to commit resources to long-lived, specialized businessenterprises.” 
Part one of this coursework, will justify the above statement by examining howseparate legal entity made incorporated companies the best form of business.And because in every society, corporations play a significant role in creatingwealth,
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the best way to manage it has been a focal point of reform for manyyears. However, the separation of ownership and control of corporations hascreated obstacles in terms of operational efficiency of a company. Adam Smith inhis book
The Wealth of Nations
described the divergent interest between ownersand managers as the obstacle to an efficient operation of a company.
3
 He wrote,directors
’’being the managers of the other people’s money rather than own, would never watch over this money with the same anxious vigilance with which partners in a privatecopartnery frequently watch over own’’ 
4
This means that managers of a company may not jealously protect the interestof the shareholder even though they are entrusted with the management andcontrol of the corporation. In addition, because the control of the corporation haspassed from the shareholders to the directors, the shareholder being a holder of 
1
Robert Sprague, ‘’ Beyond Shareholder Value: Normative Standards For Sustainable Corporate Governance’’ (2010) 1 W. M. B.. L. Rev. 47 p49
2
Arden Dde, ‘’UK corporate governance after Enron’’ (2003) 3 J. C. L. S. 269 p 269
3
Harwell Well, ‘’The birth of corporate governance’’ (2009-2010) 33 S. U. L. R. 1247p1251
4
ibid
 
right in the corporation’s wealth suddenly becomes a mere supplier of capitalwith little power to participate in the management of the corporation.
5
 In the second part of this coursework, I shall examine the fiduciary duties of directors in the management and control of corporation in the modern corporategovernance with a particular interest in the UK and US system of corporategovernance. And in addition, I shall comparatively look at where the moderncorporate governance has placed shareholders in these countries.Corporate Legal PersonalityThe most distinguishable legal element of a corporation whether in the UnitedKingdom or the United States, is its legal personality.
6
This means that thecompany is separate from its members. The well-known case on the cornerstoneof separate legal personality of a company is
Salomon v Salomon
,
7
Mr Salomonwas carrying out a business as a sole trader. As the business flourished, hedecided to sell the business to a company he registered called A Salomon & CoLtd whose shareholders were Salomon himself and his wife and five children.Salomon was issued debentures for the unpaid part of the purchase price and afloating charge on the company’s asset as security for the debt. Upon liquidationof the company, the creditors sued Salomon in his personal capacity for thecompany’s unpaid debt but he argued that limitation of liability has protectedhim.
8
At the court of first instance and the court of appeal, it was held that thecompany was acting as an agent of Salomon and therefore he should be liablefor all debts incurred by the company. On appeal, the House of Lord held that 
’’ the company is at law a different person altogether from the subscribers to thememorandum; and, though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers..’’ 
5
 
Robert Sprague, ‘’ Beyond Shareholder Value: Normative Standards For Sustainable Corporate Governance’’ (2010) 1 W. M. B.. L. Rev. 47 p49
6
In the UK, for instance, s15(1) CA 2006, provide that on registration of a company, theregistrar must give a certificate that the company is incorporated
7
(1897) AC 22
8
Ron Harris, ‘’the transplantation of the legal discourse on corporate personalitytheories; from German codification to British political pluralism and American bigbusiness’’ (2006) 63 W. L. L. R. 1421 p1465
 
This means that a company is a juridical person having the legal rights, duties,obligations and liabilities resulting from legal relationships.
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And these legalrights, duties, obligation and liabilities cannot be shared by any other personexcept where the company is acting as an agent of the other person.
In
Salomon v Salomon,
the court further held that where the company’s objectivesof entering into a legal relationship is to benefit it shareholders, is not sufficientto construe that the company is an agent of the shareholders. Therefore, as aseparate legal person from its members, a corporation can enter into a contract,be a party to a proceeding and own properties.
This concept of separate legal personality of a company had been stronglyembraced by the US
when the court in
Southern Railway v. Greene
held that 
corporations are persons under the law with the same rights as a natural personwith few exceptions.
One of these exceptions is aggravated damages which isawarded as a compensation for injury to feelings and a company has no feelingsto be injured.
Separate legal entity is a principle of commercial convenience
which allowscorporations to organize large and complex businesses as oppose to other formof business such as partnership or Joint Stock Company. These benefits arederived from the distinct effects of separate legal entity which may include1.Limited liabilityArguably, the rationale behind separate legal entity is the limitation of personalliabilities of members towards creditors.
This is an essential feature of corporate form which limits the liability of shareholders to their interest in the
9
In the UK, s16(3) CA 2006, provide that a registered company is capable of exercisingall the function of an incorporated company.
10
See J.H Rayner (mincing lane) ltd v. Department of trade and industry (1990) 2 AC 418
11
Derek F., et al.
Company Law
(26 edn, Oxford University Press Inc., New York 2009-2910) p122
12
Philip I. Blumberg, ‘’The Corporate Personality Of American Law’’ (1990) 38 A. J. C. S 49p53
13
216 U.S 400 (1910)
14
Philip I. Blumberg, ‘’The Corporate Personality Of American Law’’ (1990) 38 A. J. C. S 49p58
15
Collins Stewart ltd v financial times lid (2005) EWHC 262
16
Daniel T. C. Song, ‘’the Salomon orthodoxy: unralling the metaphorical myth’’ (2001-2002) 21 S. L. R. 199 p207
17
Marc Moore, ‘’a temple built on faulty foundation: piercing the corporate veil and thelegacy of Salomon v Salomon’’ (2006) J. B. L. p1

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