Understanding how a court will approach the interpretation of a law to determine whether it requires a court to ignore the distinct legal personality of a corporation A corporation is essentially an artificial person – also known as a corporation – because it is a separate unit of the people who own, manage and support its operations. Businesses are usually organized to profit from business activities, although some may be structured as non-profit charities. Each country has its own hierarchy of corporate and enterprise structures, albeit with many similarities. The most famous case illustrating the functioning of the concept of separate legal personality of a company is Salomon v. A Salomon & Co Ltd [1897] AC 22 (HL). The case was brought harshly in the House of Lords by the liquidator on behalf of the unsecured creditors of a company that had become insolvent very soon after its registration under the Companies Act 1862. The case is important because it confirmed a sole proprietor`s ability to transfer his business to a registered business, thereby isolating himself from the company`s liabilities. Companies can be divided into two different categories for legal and regulatory purposes: public and private companies. In the area of criminal liability, a number of offences are specifically directed against companies, in particular under the Companies Act 2006, and do not apply to individuals. Others were designed for corporations as a class of defendants in mind, for example, crimes under the Occupational Health and Safety Act, etc. 1974. When it comes to crimes in general, many crimes have been identified with individuals in mind, and courts have struggled to establish principles that govern when an artificial entity is exercised as the required mens rea and/or actus reus required, that is, for our purposes when actions and thoughts are attributed to a company. The guiding principle, derived from Lennard`s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 (HL) and developed by the courts, is called «guiding mind and will test», the «theory of identification» or the «alter ego principle».
It was applied in the main case of Tesco Supermarkets Ltd v. Nattrass [1972] AC 153 (HL), which concerned Tesco`s advertising products for sale at a price below the price at which it actually offered them for sale, an offence under the Trade Names Act 1968 (now repealed and replaced by another offence under the Consumer Protection Act 1987). The theory requires that a person be «identified» to the company for criminal liability in order to link them to the company. This happens when the individual is seen as the «guiding spirit and will» of the company. This attribution theory has led to difficult jurisprudence, and the test has been described as «dysfunctional» (see Sullivan 1996). Laws relating to professional organizations (e.g. Corporations, partnerships, limited liability companies, etc.), often use the term «legal entity,» so the laws apply to both individuals and non-human business entities. the right to protection of company property (ECHR, Art. 1 of Protocol No. 1) (see R (Infinis Plc) v Gas and Electricity Markets Authority [2013] EWCA Civ 70). Lopes LJ considered family members/shareholders to be «dummies».
What the law requires, he explained, are «seven independent gullible members who had their own minds and wills.» According to Lopes LJ, «the transaction is a tool to apply the machinery of the [1862 Act] to a state of affairs that was never considered in that act – an ingenious means of obtaining the protection of the law, and in my opinion in a manner inconsistent and contrary to its policies and provisions.» He ordered that the sale of the business to the company be set aside as a sale of Solomon to himself, not a sale, but a fiction. In R.T. Perumal v. John Deavin And Anr. (1958) it was established that no member should claim ownership of the property of a corporation during the existence or dissolution of the association. A business cannot even have an insurable interest in the ownership of the business. «It may be that after the incorporation of the company is exactly the same as before, and the same people are managers and the same hands receive the profits, so the company is not legally the representative of the subscribers or the trustees of them. Members are also not liable in any form whatsoever, except to the extent and in the manner provided for by law. «In this country, as elsewhere, company law has largely changed its economic and social function. The privileges of constitution or limited liability were originally granted to allow a number of capitalists to embark on risky adventures without bearing the burden of personal responsibility. However, due to the ease with which companies can be established in this country, and because of the rigidity with which the courts have applied the concept of company since the disastrous decision in Salomon in Salomon & Co Ltd, a single trader or group of traders are almost tempted by law to conduct their business in the form of a limited liability company, even if no particular commercial risk is involved and no loan capital is required.
(due to its existence) are or will be subject to enforceable legal obligations and liabilities. Critical review of the operation and effect of a separate legal entity in the context of a corporate group A corporation is treated as a separate legal entity from its member under the Companies Act, 2013. Therefore, the company is only liable for the shares of a company, with the exception of illegal acts of the shareholders or directors of the company. In general, a company has the ability to do both: the famous case of Solomon v. Salomon and Co. Ltd (1897) recognized the principle of a separate legal entity from a corporation, which states that a corporation has its own existence separate from its members. Thus, this concept protects shareholders from personal liability for the injustice and obligations of the company. In other words, unlike the partnership, the liability of its members of the company is limited, which means that if a company commits something wrong, the members of the company cannot be held responsible for those mistakes. From the separation of the identity of the company from its owners/shareholders and managers/directors, it follows relentlessly that when a company incurs a debt, these debts are the debts of the company that the company owes to the lender/creditor. Moreover, the company`s debt is not the debt of another person.
This means that even the owners/shareholders of the company are not required to pay an amount that the company owes to the lender/creditor. Any action for recovery of the claim must be brought by the creditor, who designates the company as the defendant in the action. The owners/shareholders of the company are not parties to whom the amount (debt) due is due to the creditor, so the action against them will fail. Understanding the importance of the intersection of agency, tort and fiduciary principles with the separate legal personality of a company A total of 20,000 shares of £1 each were issued to Mr Salomon, credited as fully paid-up shares (i.e. the shares were paid by Mr Salomon not in cash but «in kind» by the transfer of the £20,000 business to the Company. A company can enter into a contract to do business on its behalf. Since the corporation is not the trustee of its shareholders, shareholders cannot enforce the contracts entered into by the corporation because it is neither a party nor entitled to any benefit from them. Secured creditors are entitled to payment before unsecured creditors of a corporation (see Chapter 15).
The proceeds from the sale of the company`s assets were not even sufficient to pay the secured creditor, Mr. Broderip, in full. In those unfortunate circumstances, the receiver brought an action against Mr Broderip and Mr Salomon, in which he argued that the bonds issued by the company were fraudulent and invalid. The liquidator was successful at first instance and before the Court of Appeal, but was challenged in the House of Lords. Hero: Mr. Salomon had done nothing wrong, was not responsible for the company`s debts, and the loans between him and the company and Broderip and the company were valid. Sole proprietorships are legally limited to one member at a time. Businesses alone are often tied up like an incident from an office.
Examples are the Crown and the Archbishop of Canterbury. Mayors are also usually just businesses. The only company is legally different from the person who holds the position at any given time. The individual incumbent changes over time, but the sole business remains in place without the need to transfer ownership or rights to the new incumbent. The actions of the individual as a person in the company are distinct from the personal actions of the individual. The Companies Act 2013 contains provisions in sections 7 (7), 251 (1) and 339 that lift the corporate veil and reveal the true forces of action.