From: Liam Davenport LiamDavenport@PricePrior.

com
To: You You@PricePrior.com
Subject: Company Law - LTech - 2. Corporate Personality COLLABORATE (1)
Attachment: None

Hello

Jack Reid called me this afternoon. He wanted some advice about limited liability and what this
actually means for him and Kareena. I know that you have looked into this and have done some
research into the case law. We now need to prepare some advice for the client.

Can you please prepare answers to the following questions?

1. What do you understand by the concept of separate legal personality? Explain the
consequences of separate legal personality. Would this provide any advantages to Jack
and Kareena?

A company is a legal entity that is distinct from its owners - the shareholders - as well as
from its directors, creditors and employees. It has a separate legal personality.

The benefits and liabilities of the company belong to the company, which limits the
liability of the shareholders and directors of the company (Jack and Kareena). In the
event that things don’t go well it will protect their personal assets. However, Jack and
Kareena have no control over the assets of the company. The advantages is limited
personal liability. For any debt the company will be liable not Jack and Kareena.

2. Jack and Kareena are the only directors and shareholders of the company. Does their
control over the company affect their liability?

Shareholders have limited liability. Their liability is limited to the amount of their shares
even when a shareholder in reality is the controlling mind of the company (eg sole
shareholder and sole director).

These two are entirely in control of the company. However, this will not change anything
in regards to the liability of the company. The authority is Salomon v Salomon. The
liability of the shareholders is still limited.

3. Can Jack and Kareena ever be held personally liable for the debts of the business?

Jack and Kareena can be held liable if the company was set up for some fraudulent
purpose or under statute. For example section 213 and 214 of the companies act.

4. Once the company is incorporated will it be the agent of Jack and Kareena?

Section 16 CA 2006 confirms that a company comes into existence as a separate legal
person on the date of incorporation (date of issue of certificate of incorporation). Once
Jack and Kareena are appointed they will be agents of the company. The relationship
between the company and the director is fiduciary which is a relationship based on trust
 and confidence. Once the company is incorporated it will be the principal and Jack and
Karena will be the agents once they become directors.

Let’s discuss this once you have made some notes.

Many thanks

Liam