The Legal Status of a Company Under the Law

In the background of the statement referred in the undertaking 1 ( a ) Discuss the legal position of a company under the jurisprudence. Your reply should include a treatment on relevant instances

Corporate personality refers to the fact that every bit far as the jurisprudence is concerned, a company truly exists. Consequently a corporation can easy prosecute and go sued throughout a alone label, maintain a alone belongings every bit good as crucially be responsible for a alone debts. It truly is this peculiar scheme leting limited duty for stockholders for the ground that debts take part in this authorised concern from the concern and non towards stockholders for the ground that company. A company is decidedly an unnatural or even fictious remaining as opposed to the people. Normally, merely worlds normally are recognized by statute law seeing that to be able to entree authorised associations, for illustration legal documents. However companies normally are the different and are besides the fictional associated with English frequent statute law. However surely non human being, the jurisprudence recognizes a company being a authorised concern that may are present every bit good as behavior themselves like a people. A company will be recognized by statute law seeing that to be able to commitment, to carry through organisation, to have a alone belongings every bit good as money, to utilize staff, to open standard bank records, for you to get money besides to prosecute and go sued like a people.

Additionally, a company might be single and typical coming from people that purchased it such as, the existent stockholders. It ‘s besides wholly different from people that immediate and attention for that, the existent managers every bit good as staff. That single mundane life in the company coming from it is stockholders, Administrators and staff members is among the significant constructs linked to company statute laws. This companys resources, debts, and understandings similarly belong to the corporation as opposed to on the stockholders whom purchased it, non on the managers whom attention for that. This mundane life in the company is normally untouched merely by changes throughout it is stockholders and managers. Investors ( members in the company ) and managers may good alter ( one of them is normally, a new stockholder may good offer off his or her portions every bit good as a film manager may well decease or possibly decide ) but the corporation continues untasted. On that footing, it truly is popularly stated a company features ongoing sequence. A company “dies” merely when it is liquidated, injure up or possibly turns into economically bothered or bankrupt.In company jurisprudence,ageless sequenceis the continuance of a corporation ‘s or other organisation ‘s being despite the decease, personal bankruptcy, insanity, alteration throughout rank rights or possibly an leave from your organisation of merely about any owner or possibly fellow member, or possibly any transportation of stock list, or anything else.

Ageless sequence, along with the common seal, is one of the factors explicating a corporation ‘s legal being as separate from those of its proprietors. This principle states that-

  • any alteration in rank of a company does non anyway affect the position of the company,
  • decease, insolvency, insanity etc. of any member of a company does non impact the continuity of the company.thus the life of the company does non depend upon the life of its members.
  • it shall go on everlastingly irrespective of continuity of its members or directors.except in instance of weaving up or settlement of a company.

Limited liability

As I mentioned above, separate legal personality and limited liability wo n’t be the same thing. Limited liability may be the logical effect on the being of an outside personality. The legal being of your company ( corporation ) means it can be responsible for its really single debts. The stockholders will lose their peculiar initial investing inside the company but they can non be responsible for that debts of the corporation. Just as worlds will genuinely hold limitations imposed on your legal personality ( as holding childs for illustration ) , a concern can offer lawful personality without constrained liability if that ‘s how it is conferred with the legislative act.

The History Of Corporate Personality.

Corporate legal personality arose from the activities of organisations, such as spiritual orders and local governments, that had been granted legal rights with the authorities to maintain abode, file suit and remain sued into their personal suited alternatively of to acquire to number on the existent legal rights with the users powering the supplier. As clip passes the manner did get down to be employed to professional attempts holding a public captivation facet, for illustration railway building attempts every bit good as colonial covering organisations. However, modern company jurisprudence simply started out inside mid- 19th hundred old ages when combination of houses serves had been handed which frequently helped regular work forces and adult females in order to make listed houses utilizing confined legal duty. The manner in which corporate personality and limited liability nexus together is best expressed by analyzing cardinal instances.

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Salomon v A Salomon & A ; Co Ltd[ 1897 ] AC 22

Aron Salomon looked like there was a comfortable buckskin provider who particular throughout doing buckskin places. For many old ages they went his little endeavor like a individual operator. By manner of 1892, his girls acquired turn into believing about acquiring involved in the concern endeavor. Salomon chose to add in his little concern being a Restricted company, Salomon & amp ; Corp. Ltd.

At the clip the right dependance on incorporation looked like there was in which no less than several persons register seeing that members associated with an company my married woman and i. Elizabeth. seeing in which stockholders. Mr. Salomon himself looked like there was taking attention of superintendent. Mr. Salomon owned or operated 20, 001 from the house ‘s 20, 007 explains for you – the residuary 6-8 was contributed automatically affecting the another 6-8 stockholders ( married woman, princess or queen along with a figure of boies ) . Mr. Salomon sold his little endeavor towards the fresh corporation for every bit much as ?39, 000, that ?10, 000 looked like there was a fiscal debt for your pet. This single looked like there was hence in unison transmit chief stockholder in fact it is chief aggregator.

They questioned the company to publish a new unsecured bond of ?10, 000 for your pet. However, intense slow operation happened with the company can no longer pay out avocations and involvements to Salomon. Even the partner countries money, but the company however can non pay out. Finally, Salomon exchanges the unsecured bond to at least one W, however this company could non pay out. W has appeared a secured aggregators ‘ , refering to this company, seeing that they holds in respect of his a new stableness above house from the company throughout phrase from the unsecured bond. W needed a new wireless and for that ground, sold the perfect subdivision of the company, my lover and i. at the. , the fabrication works to refund his duties. Where resulted in the terminal in the little endeavor. This left the duties from the normal aggregators, for illustration, the overall providers to obtain insured. This company needed to be that ‘s why liquidated with the ownerships had gone to acquire sold to pass them.

If the exchanging upward purchase looked like there was built the functionary wireless turned liquidator unless of class along with until eventually a insolvency physician looked like there was equiped throughout their location. To be described as a murderer of an company, the official receiving system ‘s normal maps was to look into about any wrong making inside of company, to procure the ownerships, understand them along with disperse the net incomes towards house ‘s aggregators, along with, if there is frequently a extra, towards the persons permitted that ( usually the contributories ) . If the company travelled in settlement, the murderer asserted that this unsecured bonds as as used by Mr. Salomon since stableness to the recognition card debt had been badly, because of duplicity ; Salomon was n’t an existent incorporator

High Court:

The justice, Vaughan Williams J. accepted this statement, governing that since Mr. Salomon had created the company entirely to reassign his concern to it, prima facea, the company and Salomon were one unit ; the company was in world his agent and he every bit principal was apt for debts to unbarred creditors.

The entreaty:

The Court of Appeal besides ruled against Mr. Salomon, on the evidences that Mr. Salomon had abused the privileges of incorporation and limited liability, which the Legislature had intended merely to confabulate on “ independent bona fide stockholders, who had a head and will of their ain and were non mere marionettes ” . The Godhead justnesss of entreaty diversely described the company as a myth and a fiction and said that the incorporation of the concern by Mr. Salomon had been a mere strategy to enable him to transport on as before but with limited liability.

The Godheads:

The house of Lords with one voice overturned this sort of determination, rejecting the statements coming from bureau in add-on to fraud.

Salomon followed the needed processs towards set the corporation ; portions in add-on to unsecured bonds have been issued. The House of Lords held which the company continues to be validly formed because the Act merely required 7 members keeping one or more portion every.

It turned out irrelevant that the majority of portions were issued to a individual stockholder. Legislative act did non advert that merely about every portion holder truly should hold X sum connected with portions. It stated nil about his or her being independent, or them to should take an of import involvement in your project, or them to should hold a head and may of their unique, or that there needs to be anything like any balance of power inside the fundamental law of this company. ( In the Firms Act 2001, it will be possible for one stockholder to set together a company, that is a 1 adult male show where he could be himself the stockholder plus the stockholder – closed company ) .

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There was no fraud for the ground that company was a true animal of the loaners Act as at that place seemed to be conformity and it was good demands of your Registrar of Firms.

The Company are at jurisprudence a distinguishable individual. The 1862 Behave created limited liability companies as authorised individuals separate and distinguishable from your stockholders. They held that there seemed to be nil in your Act about if the endorsers ( i. Elizabeth. the stockholders ) should be in add-on to the bulk stockholder. It turned out held that: “ Either the restricted company was any legal entity or it turned out non. If the point were, the concern belonged into it and non in order to Mr Salomon. If it turned out non, there was no individual and no thing to go an agent [ of ] by any agencies ; and it can be impossible to state at the same time that there is normally a company and there isn’t. “ Hence the company belonged to this company and non in order to Salomon, and Salomon seemed to be its agent.

The House further noted:

“ The company is at jurisprudence a different individual wholly from the [ stockholders ] … ; and, though it may be that after incorporation the concern is exactly the same as it was before, and the same individuals are directors, and the same hands received the net incomes, the company is non in jurisprudence the agent of the [ stockholders ] or legal guardian for them. Nor are the [ stockholders ] , as members, apt in any form or signifier, except to the extent and in the mode provided for by the Act. ”

Other instances exemplifying the Soloman rule

The rule in soloman is best illustrated by analyzing some of the cardinal instances that followed after.

Macaura v. Northern Assurance Co Ltd [ 1925 ] AC 619

The belongings of a company belongs to it and non in order to its members. Neither a stockholder nor a creditor of your company ( unless a new secured creditor ) has a insurable involvement inside the assets of this company. Mr Macaura was on-line resources the Killymoon house in county Tyrone. In December 1919 he decided to sell to this Irish Canadian Observed Mills Ltd, all the lumber, both felled in add-on to standing, on the estate in permutation for the full supplied portion capital of the company, to go held by herself and his campaigners. He besides granted this company a licence in order to come in the house, fell the staying trees and run the sawmill. By August 1921, the company had trim down the staying trees and bushs and passed the lumber through the factory. The lumber which represented about the whole assets of this company, was so stored about the estate. On 6 February 1922 an insurance program sing the lumber was obtained in the name of Mr Macaura. On 22 Feb. a fire ruined the lumber about the estate. Mr Macaura so sought to claim beneath policy he had obtained. The Insurance company contended that he had no insurable wonder about the lumber since the lumber belonged towards company and to non Mr Macaura. The house of Lords holding with the Insurance company, found that this lumber belonged towards company and that Mr Macaura though he owned all the portions in this company had no insurable wonder about the belongings of the company. Lord Wrenbury stated that a member – “even in instance he holds all the portions is non the corporation and neither he nor any creditor of the company has merely about any belongings legal or just inside the assets of this corporation” .

More modern grades of the Soloman rule and the Macaura job is seen in instances likeDenudations plc ( in settlement ) versus Coopers & A ; Lybrand ( no 4 ) [ 2004 ] two BCLC 364.In that instance a loss suffered with a parent company caused by a loss from its subordinate ( a concern in which it held all the portions ) has non been actionable by this parent – this subordinate was the right complainant. In kernel we cant ain it both ways- restricted liability has immense advantages of stockholders about all means that this company is a single legal entity having a ain property. , protection under the jurisprudence and duties

Another good illustration isLee v. Lee ‘s Air Farming Ltd. ( 1960 ) [ 1961 ] A.C. 12 ( New Zealand P.C. )The plaintiff in error ‘s hubby formed the respondent company for the intent of transporting on the concern of aerial top dressing. The nominal capital of the company was $ 3000 divided into 3000 portions of $ 1 each. Mr Lee held 2999 portions, the concluding portion being held by a canvasser. Mr Lee was the exclusive ‘governing director” for life. He was the huge bulk stockholder, he was the exclusive government manager for life and he was an employee of the company pursuant at a salary arranged by him. Article 33 besides provided that in regard of such employment the relationship of maestro and retainer should be between him and the company.

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The hubby was killed while flying the company ‘s aircraft in the class of aerial top dressing. His widow, the plaintiff in error, claimed compensation under the New Zealand Workmen ‘s Compensation Act, 1922. On a instance stated for its sentiment on a inquiry of jurisprudence, the New Zealand Court of Appeal held that since the deceased was the regulating manager in whom was vested the full authorities and control of the company, he could non besides be a retainer of the company. The widow appealed.

It was held:

The significant inquiry which arises is, as their Lordships think, whether the deceased was a “ worker ” within the significance of the Workers ‘ Compensation Act, 1922, and its amendments. Was he a individual who had entered into or worked under a contract of service with an employer?

The company and Mr. Lee were distinguishable legal entities and hence capable of come ining into legal dealingss with one another. As such they had entered into a contractual relationship for him to be employed as the main pilot of the company. They found that he could in his function of regulating manager give himself orders as head pilot. It was hence a maestro and servant relationship and as such he fitted the definition of ‘worker’ under the Act. The circumstance that in his capacity as a stockholder he could command the class of events would non in itself affect the cogency of his contractual relationship with the company. Merely as the company and the deceased were separate legal entities so as to allow of contractual dealingss being established between them, so besides were they separate legal entities so as to enable the company to give an order to the death. In their Lordships ‘ position it is a logical effect of the determination in Salomon ‘s instance that one individual may work in double capacities. The entreaty was allowed and the widow was hence entitled to compensation.

Saloman vs Salomanwas besides accepted as good jurisprudence and applied by the Sri Lankan tribunal inTrade exchange ( Ceylon ) Ltd vs Asiatic Hotels Corporation ( 1981 ) 1 SLR 67. In that instance,95 % of the portions of a hotel company ( The Asian hotel corporation ) were held by a authorities corporation. The supreme tribunal of Sri Lanka held that the company and its portion holders were distinguishable legal entities and that the company did non go an agent of the authorities even though about all the portions ( 95 % ) were held by a authorities corporation.

In the Australian instance ofGeorge Hudson Ltd vs Bank of New South Wales ( 1978 ) 3 ALR 366, a stockholder of a company sued major bank stating that because of the carelessness of the bank in paying certain checks which it should non hold paid, the value of his portions in the company had depreciated. He claimed the sum of that depreciation as amendss from the bank. The tribunal held that if the company assets ( portion value ) had depreciated or had been damaged by the Bankss unlawful act, the proper party entitled to action the bank for amendss was non single stockholders but the company itself. Consequently, the stockholders private claim against the bank was dismissed.

Another dramatic illustration of a companys separate legal being lies in the fact that individuals in control of a company in the belief that no action can be taken against them by the company because they are portion of its direction.The right place, nevertheless, is that a company can action its ain employees and it s managers if they have caused any loss to the company by their actions. For illustration, inRegal ( Hastings ) Ltd V Gulliver[ 1942 ]UKHL 1, the managers of R Co Ltd bought portions in a subordinate company cognizing that when such a subordinate company was sold they ( the managers ) would do a significant net income. The company sued the managers and the tribunal held that the managers must return such net incomes as they had made usage of their place as managers to do a private net income for themselves. ( today the actions of the managers would be caught up by rule associating to insider trading )


A company is an unreal or fictious being – as opposed to a human being.There is truly one cardinal rule we can pull and one child one. The cardinal rule is that the company is a separate legal personality from its members and hence lawfully apt for its debts. This brings us to the minor rule. That is one time the proficient lities of the companies act are complied with, a one individual company can hold the benefits of corporate legal personality and limited liability. The above instances show how of import, it is for the populace or those engaged in concern to understand and appreciate the basic rule of company jurisprudence that a company is separate from its stockholders and staff.