Separate Legal Personality Flashcards
Pros and Cons of Incorporation
Advantages
Shares easily transferrable
Perpetual succession
Easier to borrow money (companies can create floating charges)
Limited liability and separate legal personality
Tax regime
Disadvantages
Protections given to shareholders may disadvantage creditors
May encourage risky behaviour by shareholders due to protection from company’s debts
Regulatory obligations
Certain information must be made public
Case: Salomon v Salomon
Confirmed the “veil of incorporation”
Aron Salomon incorporated a company – Salomon & Co Ltd.
Mr. Salomon then entered into a transaction with the company whereby Salomon & Co Ltd bought Mr Salomon’s business from him for just under £39,000.
Just under £9,000 paid in cash
Company issued 20,007 paid up £1 shares – 6 to Mr Salomon’s family members, 20,0001 to Mr Salomon
£10,000 debenture (long term loan) to Mr Salomon secured by floating charge
Debenture later transferred to third party as security for a loan.
Case: Quigley Meats Ltd v Hurley
Bar / restaurant called An Seanachie Bar. Payments made by cheque in the name of The Seanachie Cottages Limited (but signed by the defendant (Margaret Hurley))
Plaintiff sued company – company went into liquidation (therefore no longer existed) so plaintiff sued defendants personally
High Court: Plaintiff knew, or ought to have known that they were dealing with a limited liability company
Shows that in business, you must determine who exactly you are dealing with, a physical person or a physical person on behalf of a limited liability company.
Lee v Lee’s Air Farming
Widow able to claim compensation for husband who was director and effectively sole shareholder. He could also be an employee of the company, which was a separate legal entity
Case of Free Transfer
Farrar v Farrars Ltd:
”a sale by a person to a corporation of which he is a member is not, either in form or in substance, a sale by a person to himself”
Case for Insurable Interest
Macaura v Northern Assurance Co Ltd. [1925] AC 619
Case for Compensation
O’Neill v Ryan [1993] ILRM 557: Any loss in the value of a shareholder’s shares is just a reflection of the company’s loss. A shareholder cannot recover damages.
Case on Suing and Being Sued
Waters v Kelly – Loan was to the shareholder personally rather than to a company he controlled (veil of incorporation protected the company from the debts of its shareholder).
Suing and Being Sued 2
Company can be sued for torts.
Tortious liability of the company may be in re:
Vicarious liability: wrong is committed in the course of the company’s employees’ activities.
Acts of the company itself: done under the direction or authorisation of board of directors or shareholders in general meeting.
Cases on Suing and Being Sued
Tesco Supermarkets Ltd v Nattrass
R v P&O European Ferries (Dover)
Attorney General’s Reference
R v Alstom Network UK Limited
Cases on Constitutional Rights
Quinn’s Supermarket Ltd v Attorney General
Iarnród Éireann v Ireland
Attorney General for England and Wales v Brandon Books Publishers Ltd
Digital Rights Ireland Ltd v Minister for Communications
Meskell v CIE
Piercing the Corporate veil
Focus shifts to controllers of the company (who have previously been protected by the company’s separate legal personality / veil of incorporation)
Case: Prest v Petrodel Resources & Others [2013] UKSC 34
Piercing Corporate Veil
Members/shareholders, directors or other officers made personally liable for the debts of the company in certain circumstances - Court will disregard corporate veil (so it is as if the company did not exist)
Examples:
s.49 CA 2014 – Failure to state the company’s name on a cheque
s.610 CA 2014 – Fraudulent or reckless trading
