Corporations Separate Legal Personality Flashcards
1.1. What does limited by shares mean?
- member hold shares
- winding up: liability to the extend of unpaid shares
- resp. on winding up: to pay the unpaid shares
1.2. What does limited liability mean?
- in liquidation debts of co. not members
- members liable on o/s unpaid shares or guarantee provided
1.3. 2014 Act abolishes the current form of private limited company (limited by shares/guarantee) and replaced with
1) . Private company limited by shares (LTD)
2) . Designated Activity Company (DAC)
1.4. Features of LTD
- No objects clause
- Liability limited to no unpaid shares
- Can dispense with AGM
- Prohibited to sell securities
Must have:
- Single Constitution
- Share capital - but not authorised sh. capital
- 1-149 shareholders
- Min 1 director
- Min 1 Irish resident director
- Co-sec (cannot be same as director in a single director company)
- LTD as part of name
1.5. 3 methods an Existing Private Company Limited by Shares (EPC) could convert to a Model Company Limited by Shares (Ltd)
a) During transition period (18 mts)
- special resolution (75% shareholders)
b) After
- special resolution (75% shareholders)
- incorporation by subscription and registration
(new Constitution - same rights and oblig)
c) No action taken
- CRO issue pro forma constitution after trans period (existing M&A less objects clause)
1.6. 3 methods Existing Private Company Limited by Shares (EPC) could convert to a Designated Activity Company (DAC)
a) 3+ mts prior transition period (18 mts)
- special resolution (50%+ shareholders)
- 25%+ of voting rights shareholders write notice to company requiring to re-register as DAC
b) No action taken before end of transition period
- Members 15%+ of issued share capital can apply to Court
1.7. Features of DAC
- Same as LTD under old CA
- Ultra vires rule applies
- Cannot dispense with AGM (unless 1 member co.)
- Can list securities
Must have:
- 1-149 shareholders
- Min 2 directors
- Objects clause
- Authorised Share capital
- Constitution (replaces M&A)
- DAC as part of name
- Co-sec (can be same as director)
1.8. Features of PLC
- Can list shares to public
Must have:
- Objects clause
- Constitution (replaces M&A)
- Min 2 directors
- Min €25,000 (25%+ paid up) share capital
- Trading cert
- PLC as part of name
1.9. Concept of Separate Legal Personality - Salomon v Salomon case (1897)
Salomon summary:
- Co. is legal person, separate and distinct from its members
- Not agent/trustee of the members
- Motives for forming co. not material to its subsequent rights and liabilities
1.10. 3 ways the veil of incorporation can be lifted
1) By Agreement
2) By Statute
3) By the Courts
1.1. What does limited by guarantee mean?
- no shares/ shareholders
- winding up: members undertake to pay a fixed sum
- liability only for that amount
1.2. What does unlimited liability mean?
- liquidation sole trader/partnership/unlimited co.
- personally liable for debts
- personal property at risk for debts
1.9. What does ‘corporate veil’ mean?
- division between co and members/controllers
1.9. Benefits of ‘corporate veil’.
Shield for co. controllers from consequences of co actions, such as (Sterling Accessories Ltd 1924) :
- contracts entered into
- torts comitted
- liabilities
1.9. Drawbacks of the ‘separate legal personality’ doctrine and cases.
‘Veil’ can be lifted - controllers personally liable
Macaura (1925) - Claim insurance (on his name) for timber destroyed (owned by co.)
O’Neill (1983) - Shareholder looking for compensation on loss of share value (actually loss of co. not shareholder’s)
1.9. Drawbacks of the ‘separate legal personality’ doctrine
Macaura (1925) case
Macaura (1925)
Claim insurance (on his name) for timber destroyed (owned by co.)
1.9. Drawbacks of the ‘separate legal personality’ doctrine
O’Neill (1983) case
O’Neill (1983)
Shareholder looking for compensation on loss of share value (actually loss of co. not shareholder’s)
1.9. Benefits of ‘corporate veil’.
Lee v Lee’s Air Farming (1961)
Lee v Lee’s Air Farming Ltd (1961)
Widow attempting to receive employee benefits after main shareholder was killed in an air crash. Had to be employee. In effect the argument was that that would mean he would be contracting with himself.
However separate corporate legal personality allows this to happen, as Lees Air Farming Ltd is a separate legal entity to Mr. Lee.
1.9. Validity of principle of separate legal personality today - re Salomon case.
- still a base of the Irish Law
- diluted and modified by courts and statute
- ‘veil of incorporation’ can be disregarded and personal liability imposed
1.10. How can the veil be lifted by Agreement?
- member/director provides personal guarantee/indemnity
or - co. accepts liability on behalf of member
1.10. How can the veil be lifted by Statute?
Enforce provisions of Company Law
a. Failure to use correct name
b. Fraudulent Trading and Reckless Trading
c. Pooling order (assets of related companies
pooled together)
d. Maintenance of proper records
e. PLC with no Trading Certificate
f. Taxation Offences
1.10. How can the veil be lifted by the Courts?
'’HAITI’’
- Human Characteristics
- Avoidance of a legal duty
- Implied Agency
- To avoid fraud
- Interests of Justice/Single Legal Entity
1.10. Veil being lifted by the Courts to avoid fraud mean. Cases?
- Company formed for a fraudulent or illegal activity
- Fraudulent purpose - instrument of fraud
Creasy (1993)
Bugle Press Ltd (1961)
1.10. Veil being lifted by the Courts to avoid fraud.
Creasy (1993)
Creasy (1993)
Wrongful dismissal, co. ceased trading and transfer assets to new co. Courts; allowed plaintiff to sue original co.
1.10. Veil being lifted by the Courts to avoid fraud.
Bugle Press Ltd (1961)
Bugle Press Ltd (1961)
New co. setup for a takeover to buy the full co. including the 10% share from shareholder who didn’t want to sell its shares. A ‘sham’ incorporated solely to remove the minority 10%
1.10. Veil being lifted by the Courts on the Agency principles. Cases?
Treated as the one company when they infer the relationship of agency or trust between companies in the same group because of the special relationship which exists between what may be a holding company and one of its subsidiaries.
Smith, Stone and Knight (1939) - criteria for det. Agency
1.10. Criteria for determining agency in lifting the veil.
Re Smith, Stone and Knight (1939)
- Profits of the subsidiary treated as those of the parent co.?
- Controllers appointed by parent co.?
- Parent co. head and brains of the trading co.?
- Parent co. takes the financial decision?
- Parent co. always in control?
- Are the subsidiary co. profits attributable to the skill and direction of parent co.?
1.10. Veil being lifted by the Courts on the Agency principles.
Smith, Stone and Knight (1939)
Holding company and the subsidiary wanted to be treated as the one company to claim compensation under a compulsory purchase order.
Held: Two companies could be looked at as one entity.
1.10. Veil being lifted by the Courts in the case of avoidance a pre-existing obligation. Cases?
Abuse the privilege of incorporation by setting up a new company in order to avoid a pre-existing obligation.
Gilford Motor Company (1933)
Jones (1962)
Adams (1992)
1.10. Veil being lifted by the Courts in the case of avoidance a pre-existing obligation.
Gilford Motor Company (1933)
Old contract of employment with non-compete clause.
Defendant set up new company and ran it without being member or director, was in competition with his old employer and even approached old clients.
1.10. Veil being lifted by the Courts because of Human Characteristics. Cases?
- To examine the persons in control of a company.
- To ascertain the legal character and status of the company.
- To examine the tax residency of a company - where the real controllers are based.
Howe (1906) John Hood (1918)
1.10. Veil being lifted by the Courts because of Human Characteristics.
Howe (1906)
“Heads and brains” test to decide residence of a South African company.
Business of company - England
The central management and control - England
Held: Resident in England.
1.10. Veil being lifted by the Courts because of Human Characteristics.
John Hood (1918)
Company controlled by its shareholders at AGM and not by managing director (resident of another jurisdiction)
Held: Shareholders jurisdiction is where the control lays.
1.10. Veil being lifted by the Courts on interests of Justice/Single Legal Entity.
Cases.
Where “the justice of the case demands it”.
For companies within a group treated as a single economic entity.
Remains at the discretion of the court and not the parties
Dunnes Stores (Crumlin) Ltd (1981) Allied Irish Coal Supplies Ltd (1998)
1.10. Veil being lifted by the Courts on interests of Justice/Single Legal Entity.
Dunnes Stores (Crumlin) Ltd (1981)
Plaintiff, key tenant in the shopping centre held a lease with a restrictive covenant - landlord was not to permit another grocery store in the centre.
The shopping centre was sold to a subsidiary of the group, Dunnes Stores, to allow it to trade on the site.
Held: even if subsidiary was not party to the contract with the restrictive covenant it was bound by the covenant because the court may “treat two or more related companies as a single entity…… if this conforms to economic and commercial realities of the situation”.
1.10. Veil being lifted by the Courts on interests of Justice/Single Legal Entity.
Allied Irish Coal Supplies Ltd (1998)
The piercing of the corporate veil is not justified solely on the grounds of financial dependence between a subsidiary and its parent company.
1.10. Veil being lifted by the Courts on interests of Justice/Single Legal Entity.
Dublin City Council (1984)
The Court stated that “the arm which lifts the corporate veil must be that of justice”.
1.11. Criminal offences under CA 2014
- Fraudulent and Reckless Trading
- Insider dealing
- Statutory offences under the Criminal Justice (Thefts) Acts
- Money Laundering Offences
- Corporate Manslaughter
- Fraudulent Disposition and Fraudulent Preference
- Tax and Revenue Offences
- Health and Safety Offences
- Offences under the CA 2014
1.11. Criminal offences categories
Category 1, 2, 3, 4
1.11. Category 1 offence
- Indictment < 10 yrs imprisonment
< €500,000 fine
- Summary < 1 yr imprisonment
< €5,000 fine (Class A)
Eg.
- most serious offences.
- eg. aim to defraud creditors1.11. Category 2 offence
- Indictment < 5 yrs imprisonment
< €50,000 fine - Summary < 1 yr imprisonment
< €5,000 fine (Class A)
Eg. - restricted person continuing to act
- breach of restrictions on loans to directors
- contravene rules re financial assistance for acquisition of own shares
1.11. Category 3 offence
- Summary < 6 mts imprisonment
< €5,000 fine (Class A)
Eg: - Co. fails to appt a director for 28 consecutive days
- Failure by directors to disclose interests in the co.
- Contravention of rules re reducing its capital
1.11. Category 4 offence
- Fines only
Eg:
- Contravention of provisions on issuing shares
