company_law_ch3

company_law_ch3 - Chapter 3 The nature of legal personality...

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Unformatted text preview: Chapter 3 The nature of legal personality Contents Introduction 28 3 1 Corporate personality 29 3 2 Salomon v Salomon & Co 30 3 3 Other cases illustrating the Salomon principle 31 3 4 Limited liability 32 Reflect and review 33 page 28 University of London External System Introduction In this chapter we explore the related concepts of corporate legal personality and limited liability. These concepts are central to developing understanding of company law and it is essential that you take time here to absorb these fundamental principles. Learning outcomes By the end of this chapter and the relevant readings, you should be able to: u explain what is meant by ‘corporate legal personality’ u illustrate the key effects of corporate legal personality in relation to liability. Essential reading ¢ Dignam and Lowry, Chapter 2: ‘Corporate personality and limited liability’. ¢ Davies, Chapter 2: ‘Advantages and disadvantages of incorporation’ and Chapter 8: ‘Limited liability and lifting the veil at common law’. Cases ¢ Salomon v Salomon & Co [1897] AC 22 ¢ Macaura v Northern Assurance Co [1925] AC 619 ¢ Lee v Lee’s Air Farming [1961] AC 12 ¢ Barings plc (In Liquidation) v Coopers & Lybrand (No 4) [2002] 2 BCLC 364 ¢ Giles v Rhind [2003] 2 WLR 237 ¢ Shaker v Al-Bedrawi [2003] 2 WLR 922. Company law 3 The nature of legal personality page 29 3.1 Corporate personality Corporate personality refers to the fact that, as far as the law is concerned, a company really exists. This means that 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 allows limited liability for shareholders as the debts belong to the legal entity of the company and not to the shareholders in that company. The history of corporate personality Corporate legal personality arose from the activities of organisations, such as religious orders and local authorities, which were granted rights by the government to hold property, sue and be sued in their own right and not to have to rely on the rights of the members behind the organisation. Over time the concept began to be applied to commercial ventures with a public interest element, such as rail building ventures and colonial trading businesses. However, modern company law only began in the mid- nineteenth century when a series of Companies Acts were passed which allowed ordinary individuals to form registered companies with limited liability. The way in which corporate personality and limited liability link together is best expressed by examining the key cases. page 30 University of London External System 3.2 Salomon v Salomon & Co It was fairly clear that the mid-nineteenth century Companies Acts intended the virtues of corporate personality and limited liability to be conferred on medium to large commercial ventures. To ensure this was the case there was a requirement that there be at least seven members of the company. This was thought to exclude sole traders and small partnerships members of the company....
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This note was uploaded on 11/16/2011 for the course ECON 101 taught by Professor Tom during the Spring '11 term at FH Joanneum.

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company_law_ch3 - Chapter 3 The nature of legal personality...

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