Legal Personality

Question 1

What did Lennard’s Carrying Co Ltd v Asiatic Petroleum Co

Ltd [1915] say about companies?

Answer 1

’ a company is an abstraction. It has no

mind of its own any more than it has a body of its own…’

Question 2

What is meant by limited liability?

Answer 2

The liability of shareholders to pay debts incurred by the company is limited

Question 3

What does s74 of the Insolvency Act 1986 say?

Answer 3

It enshrines the concept of limited liability, confirming that
the shareholders of a limited company are, generally speaking, not liable to a liquidator in
the event of the company’s insolvency.

Question 4

Which section of the Insolvency Act 1986 enshrines the concept of limited liability for company shareholders?

Answer 4

s74

Question 5

Generally who do companies owe their duties to?

Answer 5

The company rather than the shareholders

Question 6

3 reasons why limited liability is significant?

Answer 6

1) Fundamental to passive investment
2) One of the main reasons entrepreneurs conduct business using limited companies
3) Why groups of companies are created - separate companies in same group minimises risk

Question 7

What is meant by passive investment?

Answer 7

shareholders can invest in a company following an assessment

of the risks of losing that investment, knowing that the rest of their p

Question 8

What is a seminal case on the concept of limited liability and separate legal personality?

Answer 8

Salomon v Salomon [1897]

Question 9

What are some of the consequences of a company being a separate legal personality?

Answer 9

1) Can own it’s own property
2) Can enter into it’s own contracts
3) Can sue and be sued

Question 10

Case for company owning it’s own property?

Answer 10

Macaura v Northern Assurance Co [1925]

Question 11

Case for company being able to enter into it’s own contracts?

Answer 11

Lee v Lee’s Air Farming Ltd [1961]

Question 12

Case for company being able to sue/be sued?

Answer 12

Adams v Cape Industries plc [1990]

Question 13

Which section of the Companies Act 2006 sets out when a company becomes a ‘body corporate’?

Answer 13

s6

Question 14

What doe s6 of the Companies Act 2006 set out?

Answer 14

When a company gets it’s own legal personality

Question 15

How many shareholder/directors does there need to be to set up a private limited company?

Answer 15

1 of each (under CA 2006)

Question 16

Which MA says that directors have day to day control over the company?

Answer 16

Model Article 3

Question 17

Justification for limited liability?

Answer 17

encourages investment and
encourages businesses to take risks,
which generates money and therefore
benefits the wider community.

Question 18

Justification for limited liability (2)?

Answer 18

Creditors will be aware that they are
contracting with a limited company as the
requirements of s 59 and s 60 CA 2006
are that all company names must end
with 'Ltd' or 'plc' (private limited)

Question 19

Justificaion for limited liability (3)?

Answer 19

Creditors are therefore on notice and
also have the opportunity of assessing the
financial viability of a company by
checking the publicly filed documents at
Companies House.