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Law 200

Individual Assignment Sec: 8
Prepared for: Barrister Saheen Ahmed Faculty Member North South University

Prepared By:

Kashfia Mahbub ID- 0910388030

Submission Date: 13th April

AIR (1963) SC 1811 Macaura v Northern Assurance Co. case [1897] Page No 3 4-5 6 6 7 8 9 10 10 Lee v Lee’s Air Farming Ltd (1961) State Trading Corporation of India Ltd.Table of Contents Topic Introduction Salomon v Salomon & Co. Case [1925] Findings from the Case Conclusion Bibliography Web References 2 .

Assignment Topic “A company at Law is distinct from its members. Directors of a company are neither agents nor trustees of the company” 3 .

One of the main motivations for forming a corporation or company is the limited liability it offers its shareholders.Introduction In the eye of law a company is a legal person and distinct from its members having separate legal entity. Artificial person having legal entity and it is perpetual until or unless wound up for the reasons and under process set by company Law. and the same hands receive the profits. a shareholder can only lose only what he or she has contributed as shares to the corporate entity and nothing more. 4 . which has later emerged as one of the most debated and talked about doctrines in the history of company law. The liabilities of members are limited by the shares they held. By this doctrine (limited liability). as such. The company has contractual capacity in its own right and can sue and be sued in its own name – members. and though it may be that after incorporation of the business is precisely the same as it was before and the same persons and managers. It can suit or be suited in its own name. "The company is at law a different person altogether from the subscribers to the Memorandum." This notation was made by the House of Lords in 1897. For analyzing the statement that “The company Law is separated from the Directors”. Since it is not a natural person and is called artificial person and as such it is run by board of directors. are not able to bind the company.here are some cases. Nor are the subscribers or members liable in any shape or form except to the extent and in the manner provided by the act. Directors act as not the owner of the company not as agent but they have to perform the functions and discharged their duties in accordance with the company law. the company is not in law the agent of the subscribers or trustees for them.

000 worth of debentures giving a charge over all the company’s assets. The company also issued 20. ruling that since Mr. That made him a secured creditor of the company. 5 . The members of the family held the shares for Mr Salomon because the Companies Acts required at that time that there be seven shareholders. The price was paid in £10. This was not an attempt at a fair valuation.007 2. When the company went into liquidation. take the company’s assets and sell them to get his money back. But it was not enough to save the company. Salomon was the major shareholder of the company. Mr. So. accepted this argument. Ltd. That means the debt is secured over the company’s assets and Mr Salomon could. the company was in reality his agent and he as principal was liable for debts to unsecured creditors. The company became insolvent. his wife and five of his children held one share each in the company. In 1892 he formed the company Salomon & Co. the liquidator argued that the debentures used by Mr. He had £10.001 shares in the company. Salomon carried on a business as a leather merchant. Salomon has three types of role in the newly formed company: 1. Mr Salomon thus held 20. The judge. He had 20. Mr. He was the Managing Director of the company. 3. Mr. at this moment.000 debentures. The newly incorporated company purchased the sole trading leather business.000 worth of debentures secured by all of the firm’s assets. case [1897] Mr. Salomon had created the company solely to transfer his business to it. Vaughan Williams J. with his family holding the six remaining shares. Salomon as security for the debt were invalid. things were not going well for the company and Salomon had to sell his £10.001 shares out of 20. Salomon was also the Managing Director of the company. on the grounds of fraud.007 shares of £1 each. Mr Salomon. After a year. if he is not repaid his debt.Salomon v Salomon & Co. rather it represented Mr Salomon’s confidence in the continued success of the business.

Salomon. the decision was against the debenture holders. The case is of particular significance in company law thus: Firstly. or common law jurisdictions. though on the grounds that Mr. Directors of a company are neither agents nor trustees of the company” 6 . Secondly. and not merely as an alias or agent of its owners.The Court of Appeal also ruled against Mr. “A company at Law is distinct from its members. When question arose about whether the debenture holders or the other creditors got higher priority on the assets. it established the important doctrine that shareholders under common law are not liable the company's debts beyond their initial capital investment. Salomon had abused the privileges of incorporation and limited liability. The rule in the Salomon case that upon incorporation. rejecting the arguments from agency and fraud. and have no proprietary interest in the property of the company. it does so in its own name and right. it established the canon that when a company acts. the company is not in law the agent or trustees of the subscribers. The House of Lords unanimously changed this decision. a company is generally considered to be a new legal entity separate from its shareholders has continued till these days to be the law in the western country courts. Lord Mcnaughton finally concluded that the company is a separate individual from its subscribers to the memorandum and although the business remains same as before.

Lee was governing director with very wide powers." Although Lee’s case is undoubtedly correct as a ruling in company law and in particular as the authority for the proposition slated above. who conducted an aerial top-dressing business. in the context of the legislation relating to redundancy payments. AIR (1963) SC 1811 It was held that As soon as citizens form a company. the 7 . Workers’ compensation insurance was taken out. Once a company or corporation is formed. Under the articles of association.Lee v Lee’s Air Farming Ltd (1961) Lee who was a pilot. the court may not consider that such a person is to be treated as an "employee" entitled to compensation for unfair or wrongful dismissal. however the question whether a person should be regarded as an "employee" of a company which he can control as a director or major shareholder may not always be clear-cut-for instance. His widow made a claim for payment under the Workers’ Compensation Act 1922. State Trading Corporation of India Ltd. Lee holds 2999 shares of the 3000 shares in the company. naming Lee as an employee. the rights guaranteed to them by article 19(1)c has been exercised and no restraint has been placed on the right and no infringement of that right is made. Her claim was initially rejected on the ground that as Lee had full control of his company he could not be a "worker" within the meaning of the Act. Lee was killed when his aero plane crashed while engaged in aerial top-dressing. formed a company to conduct the business. The remaining one share was taken by his solicitor as nominee for Lee. "Worker’ was defined under the Act as a person "who has entered onto or works under a contract of service with an employer.

Therefore the House of Lords identified the following points: The House of Lords found that: • • The timber belonged to the company and not Mr Macaura Mr. Macaura owned an estate and some timber. Mr. it also means that the company’s assets belong to it and not to the shareholders. Macaura tried to claim under the insurance. Mr. On 6th February 1922 Macaura insured the timber in his own name. Eventually in 1925 the issue arrived before the House of Lords who found that the timber belonged to the company and not to Mr. Just as. was then stored on the estate. He agreed to sell all the timber on the estate in return for the entire issued share capital of Irish Canadian Saw Mills Ltd. Macaura. Even though he owned all the shares in the company.business which is carried on by the such company or corporation is the business of that company or corporation and is not the business of the citizens who get the company or corporation incorporated and the rights of the incorporated body must be judges on that footing and cannot be judged on the assumption that they are the rights attributed to the business of individual citizens. (1925) AC 619 seems to have served as vivid illustration of the impact of separate personality and limited liability. Macaura but never proven. Macaura v Northern Assurance Co. Case [1925] The case of Macaura v. The timber. Macaura. 8 . Allegations of fraud were also made against Mr. Northern Assurance Co. Two weeks later a fire destroyed all the timber on the estate. corporate personality not only facilitates limited liability by making the debts belong to the corporation but also it means that the company’s asset belongs to it and not to the shareholders. Macaura had no insurable interest in the property of it. which amounted to almost the entire assets of the company. even though he owned all the shares in the company. Mr. had no insurable interest in the property of the company • Just as corporate personality facilitates limited liability by having the debts belong to the corporation and not the members. The Insurance Company refused to pay arguing that he had no insurable interest in the timber as the timer belonged to the company.

as if it is a person. The members and other peoples including the directors in the company may change from time to time but that does not affect the company’s continuity. law considers it in such a way that. (Macura vs. Shareholders have no legal or equitable interest in their company’s property. It is a legal person. even with the owners. 9 . Lee)  The member of a company may come and go but a company never dies. Salomon)  The company can even employ its owner/shareholder. some of the notions of ‘corporate personality’ can be summarized here. It is an entity with perpetual succession. That means. as owner of the timber had the requisite insurable interest in it. (Salomon vs.The insurers were not liable. Only Macaur’s company. Findings from the Case:  The mentioned cases demonstrate different aspects of corporate personality.  Company is not an agent of the shareholders. Salomon)  Company as a legal person has its own debt and its own assets. Only the company and not Macaura could insure its property against loss or damage. so it can engage in contractual relationship. (Salomon vs. Salomon)  The shareholders have limited liability for company’s debt and their personal insurance will not cover company’s assets. (Lee vs. (Salomon vs. northern assurance co)  Company is legal person. From the analysis of those famous cases. The shareholders can become manger or creditor of the company.

Along with the facts trustees in law is the owner of the trust property and deals with it as principal. However a director is not the owner of the funds which he has to apply. Conclusion A company is a legal entity in its own rights.  Shareholders have no legal or equitable interest in their company’s property. 10 . So it’s clear that company at law is distinct from its members. Company as a legal person has its own debts and its own assets. and the members have limited liability for its debts and obligations. Company is not an agent of the shareholders. It’s a legal entity separate from its shareholders. The company owns those property and funds which are merely under the control of the directors. Directors of the company are neither agents nor the trustee of the company.

(2008).org/wiki/United_Kingdom_company_law 2.wikipedia. K. Web References 1. Kolkata: The World Press Private Ltd.lexvidhi. (2005).html 11 . Zahir.com/article-details/case-study-on-separate-legal-entityof-a-company-129. Dhaka: The University Press Limited.org/wiki/Salomon_v_A_Salomon_%26_Co_Ltd 3. A. Commercial Law Including Company Law And Industrial Law (26th Ed.wikipedia. Company and securities law. M. http://en.Bibliography Sen.). http://www. http://en.