Question 1
The implications of Anil, Sunil, and Nazir's decision to incorporate their company, and
the doctrine of corporate personality will be explored. A well as, if Anil is right in
thinking the agreement with his previous employers is irrelevant. Limited liability, the
concepts of corporate personality and ‘lifting the veil’ and its exceptions in addition to
legal precedents and legislation, including the Companies Act 2006 1 and the
Insolvency Act 19862 will be used to reach the conclusion on questioning the
irrevocability of Anil's covenant and what incorporating a company means for the
three brothers.
To begin, there are five key trading structures in England and Wales: sole traders,
partnerships, limited liability partnership, private limited company, and a public
limited company. Each trading structure varies from the others in terms of legal
ownership and management. With the intention of selling workplace computer
systems, Anil, Sunil, and Nazir established a small company under the name 'Smart
Systems Ltd'. Meaning they are a private limited company. 3 Private limited
companies are the most common trading structures and are the central focus of
company law. Incorporating is the method through which a company is formed and
promoters (those who originally create the company and are often the first
shareholders and directors) have the authority to write the company's founding
memorandum and articles of incorporation. The shareholders and the directors of a
larger limited company are usually two separate groups with different responsibilities
(ownership and control). However, in a small company, shareholders can also serve
as directors.4 In this case, the three brothers are all directors and shareholders.
In both public and private limited companies, the owners personal assets are kept
separate from the companies. This is the principle of ‘limited liability’ which was
established to promote enterprise and risk-taking. In the event of a business failure,
the owners individual assets are usually shielded from the claims of the company's
creditors. One of the many benefits of this is it encourages people to take the risk of
starting their own businesses, which can lead to a substantial financial reward.
However, a drawback of this is the potential for fraud, 5 which poses a threat to
national defence and security. The concept of limited liability was founded in
Salomon v Salomon [1897]6, making it the single most important case in the history
of company law because it serves as its basis. The case involved a question of law
rather than fairness, and the circumstances in Salomon demonstrated both the
advantages and disadvantages of limited liability. The legal principle of law applied
here was when the House of Lords had to decide whether the company and
1
The Companies Act 2006
2
The Insolvency Act 1986
3
Govuk, 'Limited Companies ' (Govuk, 2022) <https://www.gov.uk/limited-company-formation>accessed 03 April 2023
4
The Companies (Single Member Private Limited Companies) Regulation 1992
5
Counterfraudgovau, 'The total impacts of fraud'(Commonwealth Fraud Prevention Centre, 2023)
<https://www.counterfraud.gov.au/total-impacts-fraud>accessed 04 April 2023
6
Salomon v Salomon & Co [1879] AC 22
The implications of Anil, Sunil, and Nazir's decision to incorporate their company, and
the doctrine of corporate personality will be explored. A well as, if Anil is right in
thinking the agreement with his previous employers is irrelevant. Limited liability, the
concepts of corporate personality and ‘lifting the veil’ and its exceptions in addition to
legal precedents and legislation, including the Companies Act 2006 1 and the
Insolvency Act 19862 will be used to reach the conclusion on questioning the
irrevocability of Anil's covenant and what incorporating a company means for the
three brothers.
To begin, there are five key trading structures in England and Wales: sole traders,
partnerships, limited liability partnership, private limited company, and a public
limited company. Each trading structure varies from the others in terms of legal
ownership and management. With the intention of selling workplace computer
systems, Anil, Sunil, and Nazir established a small company under the name 'Smart
Systems Ltd'. Meaning they are a private limited company. 3 Private limited
companies are the most common trading structures and are the central focus of
company law. Incorporating is the method through which a company is formed and
promoters (those who originally create the company and are often the first
shareholders and directors) have the authority to write the company's founding
memorandum and articles of incorporation. The shareholders and the directors of a
larger limited company are usually two separate groups with different responsibilities
(ownership and control). However, in a small company, shareholders can also serve
as directors.4 In this case, the three brothers are all directors and shareholders.
In both public and private limited companies, the owners personal assets are kept
separate from the companies. This is the principle of ‘limited liability’ which was
established to promote enterprise and risk-taking. In the event of a business failure,
the owners individual assets are usually shielded from the claims of the company's
creditors. One of the many benefits of this is it encourages people to take the risk of
starting their own businesses, which can lead to a substantial financial reward.
However, a drawback of this is the potential for fraud, 5 which poses a threat to
national defence and security. The concept of limited liability was founded in
Salomon v Salomon [1897]6, making it the single most important case in the history
of company law because it serves as its basis. The case involved a question of law
rather than fairness, and the circumstances in Salomon demonstrated both the
advantages and disadvantages of limited liability. The legal principle of law applied
here was when the House of Lords had to decide whether the company and
1
The Companies Act 2006
2
The Insolvency Act 1986
3
Govuk, 'Limited Companies ' (Govuk, 2022) <https://www.gov.uk/limited-company-formation>accessed 03 April 2023
4
The Companies (Single Member Private Limited Companies) Regulation 1992
5
Counterfraudgovau, 'The total impacts of fraud'(Commonwealth Fraud Prevention Centre, 2023)
<https://www.counterfraud.gov.au/total-impacts-fraud>accessed 04 April 2023
6
Salomon v Salomon & Co [1879] AC 22
