2 Company Law

and does lead to a considerable number of obligations to file accounts,

and so on, which may create a considerable burden for a small concern.
Further, if a very small business wishes to raise a loan from a bank, the
bank will normally require a personal guarantee from the people running
the business. This means that the advantage of limited liability will,
practically speaking, be lost.
A further disadvantage of attempting to run a business with a large
number of people involved is that there may be considerable difficulties
experienced when some of those people die, wish to retire or simply leave
the business. There may be great difficulties for a person dealing with the
business in deciding precisely who is liable to pay him. In a shifting body
of debtors, an outsider may experience extreme difficulty in determining
which people were actually involved in the business at the time that is
relevant to his claim against the business. This difficulty is solved by the
invention of the legal fiction of corporate personality. The idea is that the
company is an entity separate from the people actually involved in it. This
fictional 'legal person' owns the property of the business, owes the money
that is due to business creditors and is unchanging even though the people
involved in the business come and go. The importance of the invention
was emphasised when in 1971 a team of Canadian lawyers (principally
Robert Dickerson, John Howard, Leon Getz and Robert Bertrand)
undertook a comprehensive review of Canadian corporation law. Their
aim was not piecemeal reform but a fundamental review of company law
in order to determine what the purpose behind the existence of the current
rules were, whether that purpose was being achieved, and where necessary
to suggest improvements to the system. Because the review started from
fundamentals it contains many lessons for those who seek to formulate
law to govern the behaviour of corporations and their relationship with
the public and the state.
The first point made in the Introduction to the Canadian review
(Proposals for a New Business Corporations Law for Canada (Canadian
Government Publications, 1971), authors as above) is the importance of
the corporation in the economic system: it can 'scarcely be exaggerated'.
Those reformers came to the conclusion that Canadian companies were
subject to too much regulation and proposed a drastic reduction of the
number and complexity of rules applying to companies. Their
recommendations were largely accepted and became the Canada Business
Corporations Act of 1975. As we examine the company law of the United
Kingdom it is useful to consider the purpose behind the various rules and
whether they are sufficiently effective in achieving their purpose. Also
whether they justify the expense which is incurred by companies to ensure
that their operations stay within the complicated framework that has
grown up. Section 1 of the Companies Act 1985 begins the statute with the
declaration:

'Any two or more persons associated for a lawful purpose may, by

subscribing their names to a memorandum of association and otherwise