Company Law - Intro and Fundamental Principles Flashcards
What is a company?
Acompanyis a legal entity formed by a group of individuals to engage in and operate a business (commercial or industrial) or enterprise
When is a company formed?
when it has been registered with the Registrar of Companies and they issue a certificate of incorporation (2006 CA, s7-16)
What are the two distinctions between limited liability companies?
- the limited liability company by shares or guarantee
- the private limited company and the public limited company
a) private limited company
b) public limited company (plc)
What are the distinctions between a private company and a plc?
CA 2006:
s755-760: a private limited company is prohibited from offering shares or debentures to the public, whereas a plc can do so
s271: a public limited company MUST appoint a company secretary but a private limited company may choose whether to do so
s154: a private company must have a minimum of one director while a public limited company must have at least two
s761-767: a public company must comply with the minimum authorised share capital requirements
s58-60: the name of a public company must end in the words “public limited company” or plc and a private company must use “limited” or Ltd.
What are the effects of registration?
- separate legal persona - a company is a body therefore can sue, be sued and own property
- perpetual succession - a change in the company’s membership by a transfer of shares or death does not represent a change in the company itself
- limitation of liability - a company is fully liable for their debts. Limited liability will encourage enterprise and money to be put into the economy
Salomon v Salomon (1897) (separate legal persona)
Facts: Mr S had a sole trader and converted his business into a limited liability company by selling shares. He took 20,001 £1 shares and his wife and 5 kids took 1 £1 share. His business went into liquidation and he didn’t have enough money to repay his creditors
Held: Mr S didn’t need to indemnify his creditors as the company is separate from Mr S (corporate veil)
Lee v Lee Air Farming (1960) (separate legal persona)
Facts: Mr Lee owned majority of the shares of an aerial crop spraying business and was the sole working director when he was killed piloting the aircraft
Held: as the company has distinct persona he could be an employee for the purpose of the relevant statute with rights as he was killed in the course of his employment
Macaura v Northern Life Assurance (1925) (separate legal persona) (lifting corporate veil)
Facts: Macaura owned a forest and when he formed a company he sold the forest to the company but he kept the insurance policy in his name, not the company’s name. The forest was destroyed in a fire.
Held: he couldn’t claim on the policy since the property damaged belonged to the company not him, and as he is a shareholder he had no insurable interest in the forest. The courts were not prepared to pierce the veil to recover the insurance.
Foss v Harbottle (1843) (Proper Plaintiff’ Principle)
Facts: 2 minority shareholders initiated proceedings against directors of the company. They claimed that the directors has misapplied company assets.
Held: The court dismissed this as it is only the company that has standing to sue, the company has to initiate the recovery of a loss
What does ‘lifting the corporate veil’ mean?
Lifting (or piercing) the corporate veil means that, in certain circumstances, the courts may look through the company to the identity of the shareholders and office bearers
What are the examples in which a veil can be lifted under statute?
Under Statute:
1. CDDA 1986, s15 - director can’t be director if disqualified
- Insolvency Act 1986 - members/directors liable for wrongful/fraudulent trading, may be personally liable
- CA 2006, s767 - if a company trades without a certificate, the directors are liable
- CA 2006, s399 - requires accounts to be prepared by relevant companies to recognise common link
What are the examples of the veil being lifted under common law?
‘judicial lifting’
- trading with the enemy - during war it is illegal to trade with the enemy
- fraud/evasion - company has been incorporated with the specific objective of facilitating fraud or evading its existing legal obligations or liabilities
- concealment - where special circumstances exist which demonstrate that the company is a mere façade or sham concealing the true facts
Daimler Co Ltd v Continental Tyre and Rubber Co BG Ltd (1916) (trading with the enemy)
Continental sued Daimler for debts owing. Continental was a UK company but all the shareholders were German and Daimler successfully argued that to pay the debt amounted to trading with the enemy which would go towards the German war effort (1916 - First World War)
Gilford Motor Compant Ltd v Horne (1933) (fraud/evasion)
Facts: Mr Horne had been an employee of Gilford Motor Company and as such was subject to a restrictive covenant in his contract. He left the employment of Gilford Motor Company and set up a company through which he approached customers of his former employer.
Held : the company could be restrained from competition as the former employee had set up the company to evade his own legal obligations. An injunction was granted against him and the company.
Jones v Lipman (1962) (fraud/evasion)
Facts: Mr Lipman contracted to sell his land and thereafter changed his mind. In order to avoid an order of specific performance he transferred his property to a company.
Held: the veil was lifted in order to prevent Mr Lipman evading specific performance. An order of specific performance was granted against him and the company to transfer the property to the buyer.
