Professional Documents
Culture Documents
Introduction:
A company is at law a distinct person. A company is neither the agent nor the trustee of
the shareholders. This is a statement made by Lord MacNaughten during the Salomon vs.
Salomon case. The purpose of this Assignment is to analyze this legendary statement on
corporate personality, in the lights of some leading cases.
confidence in the continued success of the business. The price was paid in 10,000 worth of
debentures giving a charge over all the companys assets. That means the debt is secured over the
companys assets and Mr. Salomon could, if he is not repaid his debt, take the companys assets
and sell them to get his money back. The company also issued 20,007 shares of 1 each. Mr.
Salomon issued 20,001 shares of his name, and 6 shares for his family members, thus the
company held 20,007 shares. The rest of the 9,000 was paid in cash.
After a year, things were not going well for the company and Salomon had to sell his 10,000
debentures. But it was not enough to save the company. The external creditors demanded money
because Salomon and Salomon Company were both one person and this business was of
Salomon and it was being operated by him. It was a fraud.
Either the limited company was a legal entity or it was not. If it were, the business
belonged to it and not to Mr. Salomon. If it was not, there was no person and no thing to
be an agent (of) at all; and it is impossible to say at the same time that there is a company
and there is not.
The company is at law a different person altogether from the shareholders; and,
though it may be that after incorporation the business is precisely the same as it was
before, and the same persons are managers, and the same hands received the profits, the
company is not in law the agent of the shareholders or trustee for them. Nor are the
shareholders, as members, liable in any shape or form, except to the extent and in the
manner provided for by the Act.
In the end the court decided that Salomon and Company Ltd. is different from Salomon, and
Salomon is a secured creditor. So his given loan should be returned first.
Separate Property:
It is also feature of the company that property of company is different from its members. It can
purchase or sell property without the permission of shareholders. In other words, assets of the
company are not the assets of members like partnerships.
Limited Liability:
Limited liability is also another important feature of company. It is the reason that large number
of investors invest in limited liability companies. It is the liability of company to repay not the
liability of its members. Members liability is only limited up to the purchased value of shares.
They have to pay balance amount of their shares.
Perpetual Succession:
The life of company is very stable that human beings life. There is no effect of changing, death,
insolvency of respected member on company. Its existence is not affected by the members
existence. Shares can be easily transfer from one member to another member, so liquidation of
company is only possible by law.
Common Seal:
Company can not sign on any contract because it is artificial person and it works with common
seal. Every document of contract with company is only valid, if there is common seal of
company on it.
Right to Sue:
Company can sue on other parties like natural person for protecting its assets and properties.
Other persons can also charge on the company.
Some other leading cases will help us to analyze the statement, A company is at law a distinct
person. A company is neither the agent nor the trustee of the shareholders.
Mr. Macaura, even though he owned all the shares in the company, 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, it also means that the companys assets belong to it and
not to the shareholders.
"Whether or not this is desirable, the right to use a corporate structure in this manner is
inherent in our corporate law. In our judgment Cape was in law entitled to organize the
group's affairs in that manner."
Subsequent to the decision (which has been followed), English law on this subject is accepted to
be that the court may only pierce the corporate veil in the following circumstances:
When the court is satisfied that the company is a "mere facade" concealing the true facts;
or
When it can be established that the company is an authorized agent of its controller or its
members (corporate or human).
The court cannot lift the corporate veil merely because it considers that justice requires it. Nor
can it have regard to the economic reality, and regard a group of companies as a single entity.
The court separately had to consider whether Cape had established a presence within the United
States such that the English court should recognize the jurisdiction of the United States over
Cape, and enforce a U.S. judgment against it .
The Court of Appeal held that in order for a company to have a presence in the foreign
jurisdiction, it must be established that:
The company had its own fixed place of business (a branch office) in the jurisdiction
from which it has carried on its own business for more than a minimal time; and
On the facts the Court of Appeal held that Cape had no fixed place of business in the United
States such that recognition should not be given to the U.S. judgment awarded against it.
The company and Mr. Lee were distinct legal entities and therefore capable of entering
into legal relations with one another
Mr. Lee and the company had entered into a contractual relationship for him to be
employed as the chief pilot of the company.
Conclusion:
Lord MacNaughten stated, The Company is at law a different person altogether from its
members, the company is not in law agent of the subscribers or to the trustees of them.
Company is a separate legal entity from its owners or shareholders. A company is regarded by
law as a single person. It has a legal personality. Corporate personality refers to the fact that as
far as the law is concerned a company really exists on its own. As a result of this, 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 enables limited liability for shareholders.
Limited liability of the shareholders is an implication of the Corporate Personality feature.
According to it, the creditors of a company are not creditors of individual shareholders and a
decree obtained against a company cannot be executed against any shareholders. It can only be
executed against the assets of the company.
Therefore, the statement given by Lord MacNaughten expresses the concept of corporate
personality.
Reference:
http://www.lawtel.com
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