Law200 Shd by Sohag

8/9/2019 Law200 Shd by Sohag

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ASSIGNMENT- LAW-200

(March 30, 2010)

Submitted to:

Faculty Member-

Barrister Saee! Amed "S#$LAW-200

Sectio!: 0%

Submitted by: M &uul 'uddus

I# ( 0)20**+++0

Nort Sout Ma,iara


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I!troductio!:

“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.

.oma!y a!d its Mea!i!,:

In general sense, a company means a group of people associated to achieve some specific goals.

We can define a company as a voluntary organization for profit with capital dissociable into

movable shares with limited liability, having a corporate body and common varnish. Thecompany is an artificial legal person created by law and empowered with certain exponents. It

exists in the eyes or contemplation of law as thought it were a natural person, separate and

distinct from the persons who are its members. The features of the company are precisely

described below.

Searate Le,al E!tity:

It is the feature of the company that is not ust association of persons but it has separate legal

entity. !y law it is an artificial person. Its asset is not the assets of the shareholders. It can

contract with the members. This feature was firstly accepted in Salomon vs. Salomon and

"ompany #td.

Salomo! / Salomo! .o Ltd1 "+)3$:

$r. Salomon was a dealer and manufacturer of leather boot and shoe. In %&'(, he sold his

business to Salomon and "ompany #td. which he made himself. )e as well as his wife, his

daughter and his four sons were the shareholders of that company. The newly incorporated

company purchased the sole trading leather business. $r. Salomon valued the leather business at

*+',. This was not an attempt at a fair valuation- rather it represented $r. Salomons


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confidence in the continued success of the business. The price was paid in *%, worth of

debentures giving a charge over all the companys assets. That means the debt is secured over the

companys assets and $r. Salomon could, if he is not repaid his debt, ta/e the companys assets

and sell them to get his money bac/. The company also issued (,0 shares of *% each. $r.

Salomon issued (,% shares of his name, and 1 shares for his family members, thus the

company held (,0 shares. The rest of the *', was paid in cash.

After a year, things were not going well for the company and Salomon had to sell his *%,

debentures. !ut it was not enough to save the company. The external creditors demanded money

because Salomon and Salomon "ompany were both one person and this business was of

Salomon and it was being operated by him. It was a fraud.

Te 4ouse o5 Lords said:

• 23ither the limited company was a legal entity or it was not. If it were, the business

belonged to it and not to $r. Salomon. If it was not, there was no person and no thing to

be an agent 4of5 at all- and it is impossible to say at the same time that there is a company

and there is not.6

• 2The company is at law a different person altogether from the shareholders7- 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. 8or are the

shareholders, as members, liable in any shape or form, except to the extent and in the

manner provided for by the Act.6

In the end the court decided that Salomon and "ompany #td. is different from Salomon, and

Salomon is a secured creditor. So his given loan should be returned first.


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Searate 6roerty:

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 li/e partnerships.

Limited Liability:

#imited 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. $embers liability is only limited up to the purchased value of shares.

They have to pay balance amount of their shares.

6eretual Successio!:

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 li9uidation of

company is only possible by law.

.ommo! Seal:

"ompany can not sign on any contract because it is artificial person and it wor/s with common

seal. 3very document of contract with company is only valid, if there is common seal of

company on it.


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&i,t to Sue:

"ompany can sue on other parties li/e natural person for protecting its assets and properties.

:ther persons can also charge on the company.

Some other leading cases will help us to analyze the statement, 2A company is at law a distinct

person. A company is neither the agent nor the trustee of the shareholders.6

Macaura / Norter! Assura!ce .o Ltd1 "+)2%$:

$r. $acaura owned an estate and some timber. )e agreed to sell all the timber on the estate in

return for the entire issued share capital of Irish "anadian Saw $ills #td. The timber, which

amounted to almost the entire assets of the company, was then stored on the estate. :n 1

;ebruary %'((, $r. $acaura insured the timber in his own name. Two wee/s later a fire

destroyed all the timber on the estate. $r. $acaura tried to claim under the insurance policy. The

insurance company refused to pay out arguing that he had no insurable interest in the timber as

the timber belonged to the company. Allegations of fraud were also made against $r. $acaura

but never proven. 3ventually in %'(


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Adams / .ae I!dustries lc " +))0$:

Facts:

To summarize the relatively complicated case, the company was an American registered

company whose business was mining asbestos in South Africa. The company had become the

subect of a class action lawsuit in the >nited States, and the company tried to avoid fighting the

case in the American courts on urisdictional grounds. The ?laintiffs obtained a udgment against

the 3nglish company in the American courts, but as "ape had no assets left in the >.S., they then

sought to enforce the udgment against the principal company in the group in the 3nglish courts.

7ud,me!t:

The court accepted that the purpose of the corporate group structure set up by "ape Industries

had been used specifically to ensure that the legal liability of a particular group would fall upon

the particular group and not the defendant company in 3ngland.

Te court eld tat:

• @Whether or not this is desirable, the right to use a corporate structure in this manner is

inherent in our corporate law. In our udgment "ape was in law entitled to organize the

groups affairs in that manner.@

Subse9uent to the decision 4which has been followed5, 3nglish law on this subect is accepted to

be that the court may only pierce the corporate veil in the following circumstancesB

• When the court is construing a statute, contract or other document-

• 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 4corporate or human5.

http://en.wikipedia.org/wiki/Asbestoshttp://en.wikipedia.org/wiki/Asbestoshttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/Class_actionhttp://en.wikipedia.org/wiki/Class_actionhttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/Class_actionhttp://en.wikipedia.org/wiki/Asbestos


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The court cannot lift the corporate veil merely because it considers that ustice re9uires it. 8or

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 "ape had established a presence within the >nited

States such that the 3nglish court should recognize the urisdiction of the >nited States over

"ape, and enforce a >.S. udgment against it .

The "ourt of Appeal held that in order for a company to have a presence in the foreign

urisdiction, it must be established thatB

• The company had its own fixed place of business 4a branch office5 in the urisdiction

from which it has carried on its own business for more than a minimal time- and

• The companys business is transacted from that fixed place of business.

:n the facts the "ourt of Appeal held that "ape had no fixed place of business in the >nited

States such that recognition should not be given to the >.S. udgment awarded against it.

Lee ".ateri!e$ / Lee8s Air Farmi!, Ltd1 "+)9+$:

$r. #ee integrated a company, #ees Air ;arming #imited, in August %'


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Te 6ri/y .ou!cil 5ou!d:

• The company and $r. #ee were distinct legal entities and therefore capable of entering

into legal relations with one another

• $r. #ee and the company had entered into a contractual relationship for him to be

employed as the chief pilot of the company.

.o!clusio!:

#ord $ac8aughten stated, 2The "ompany 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 them6.

"ompany 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. "orporate 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 Hcrucially H be liable for its own

debts. It is this concept that enables limited liability for shareholders.

#imited liability of the shareholders is an implication of the D"orporate ?ersonality 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 #ord $ac8aughten expresses the concept of corporate

personality.


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&e5ere!ce:

• Smith Jeenans "ompany #aw, %Cth edition, ?earsonK#ongman

• httpBLLwww.lawtel.com

• httpBLLwww.stor.com

http://www.lawtel.com/http://www.lawtel.com/

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