Seperate Legal Personality Flashcards
What are the two core principles central to corporate personality and limited liability?
Separate legal personality and the limited liability of shareholders.
Why is an understanding of corporate personality and limited liability crucial in company law?
They define the legal and financial separations between a company, its members, and its managers.
How did traders in medieval times conduct business?
Through partnerships, where the law deemed a partnership existed when people acted together for profit.
What was the significance of Royal Charters in the 16th century?
They established corporations such as the East India Company with monopoly rights and separate legal personalities.
What was the Bubble Act 1719, and why was it introduced?
It restricted the formation of companies without a Royal Charter to prevent speculative bubbles like the South Sea Bubble.
How did the Joint Stock Companies Act 1844 revolutionize business?
It introduced a simple registration process, allowing ordinary people to form companies.
What innovation did the Limited Liability Act 1855 introduce?
It limited investors’ liability to the amount they invested, making corporate investment safer.
What are the two main legal consequences of incorporation?
Perpetual existence and separate legal personality.
How does perpetual existence benefit companies?
It ensures the company continues regardless of the death or departure of shareholders.
What does separate legal personality enable a company to do?
Own property, sue, be sued, and incur debts in its own name.
What was the issue in Salomon v Salomon?
Whether the company was merely an “alias” for Mr. Salomon, making him personally liable for its debts.
What principle did the House of Lords establish in Salomon?
A company is a separate legal entity, and its debts are not the personal debts of its shareholders.
How did Mr. Salomon protect himself as a secured creditor?
He used debentures, which gave him priority over other creditors.
What key concepts did Salomon v Salomon confirm?
- A one-person company can be validly incorporated.
- Courts are reluctant to pierce the corporate veil.
- Debentures offer additional protection for investors.
What principle was upheld in Gramophone & Typewriter Co Ltd v Stanley (1908)?
Holding all the shares in a company does not create an agency relationship between the shareholder and the company.
What did the case Macaura v Northern Assurance Co (1925) establish about corporate property?
Corporate property belongs to the company, not its shareholders, even if one person owns all the shares.
How did Lee v Lee’s Air Farming (1961) demonstrate the separateness of a company?
Mr. Lee was both the company’s governing director and an employee, showing a company can contract with its members.
What was the decision in Prest v Petrodel Resources Ltd [2013]?
The corporate veil was upheld, but the property was deemed held on trust for the shareholder based on the case facts.
What was the issue in Barings Plc v Coopers & Lybrand (2002)?
Whether a parent company could claim losses suffered by its subsidiary. The court ruled they were separate legal entities.
What did Revenue and Customs Commissioners v Holland (2010) confirm about directors?
A director of a corporate director is not automatically a “de facto” director of the company itself.
What did the court emphasize in MacDonald Dickens & Macklin v Costello (2011)?
Respect for corporate personality as a separate entity.
What does limited liability mean for shareholders?
Shareholders are only liable for the unpaid amount on their shares, protecting personal assets.
Can a company exist without limited liability?
Yes, as an unlimited company under Section 3 of the Companies Act 2006.
Does limited liability apply to tort claims against the company?
Yes, the company is liable, not its shareholders.
