Business law
,Fundamental principles of
company law
• Separate legal personality:
- Own property in its own name
- Enter into contracts in its own name
- Its profits and debts are its own
- Somebody wishes to sue a company, the D will be the company itself, rather than the indivi
who own and run it.
- Not absolute some situations may call for a ‘piercing of the corporate veil’ exception (Pr
Petrodel)
,• Limited liability for the members The debts of the company/LLP belong to it and do not a
on the partners. The amount of money the shareholders will lose when the company bec
insolvent is limited to the amount they invested
• It is possible (although very unusual) that the shareholder has not yet fully paid for
shares. In this case, if she has agreed to pay £4,000 for the shares but has only
£3,000 then she can be asked to contribute another £1,000. This is what S.74(2)(d) o
Insolvency Act 1986 accomplishes.
, Salomon v Salomon
• This is landmark case confirming the full extent of the concept of separate legal personality.
• The C argued that because one person controlled the company and was entitled to all the benefi
it, the company did not exist as a separate legal person and its principal shareholder and dire
could be held personally liable for the company’s debts.
• The HOLs rejected this, holding that as long as a company is legally incorporated, it must be tre
like any other independent person with rights and liabilities: using a company to manage risk
avoid liability for debts is acceptable.
• Additional notes: Mr Salomon was actually a debenture-holder of his company. A debentur
broadly speaking, a long-term loan, and this is only important because debentures are o
"secured" by the assets of the company (i.e. if you don't repay, I'll sell your stuff to get the mo
back instead). This made Salomon a "secured creditor" of his own company. It gives Salomon's
claim against his own company "priority" once the company goes bust and has to sell its stuff to
off its debts. Usually, under this process, control over the company is granted to a "liquidator"
will "liquidate" the company's assets and pay off its debts, starting with secured creditors and en
at unsecured creditors. And quite a lot of the time, there isn't enough money left to pay
unsecured creditors. If the principle of separate legal personality was not upheld, then Salo
would not just have to personally account for the debts of the unsecured creditors--he would
have lost his priority over them in claiming back the money loaned.
,Fundamental principles of
company law
• Separate legal personality:
- Own property in its own name
- Enter into contracts in its own name
- Its profits and debts are its own
- Somebody wishes to sue a company, the D will be the company itself, rather than the indivi
who own and run it.
- Not absolute some situations may call for a ‘piercing of the corporate veil’ exception (Pr
Petrodel)
,• Limited liability for the members The debts of the company/LLP belong to it and do not a
on the partners. The amount of money the shareholders will lose when the company bec
insolvent is limited to the amount they invested
• It is possible (although very unusual) that the shareholder has not yet fully paid for
shares. In this case, if she has agreed to pay £4,000 for the shares but has only
£3,000 then she can be asked to contribute another £1,000. This is what S.74(2)(d) o
Insolvency Act 1986 accomplishes.
, Salomon v Salomon
• This is landmark case confirming the full extent of the concept of separate legal personality.
• The C argued that because one person controlled the company and was entitled to all the benefi
it, the company did not exist as a separate legal person and its principal shareholder and dire
could be held personally liable for the company’s debts.
• The HOLs rejected this, holding that as long as a company is legally incorporated, it must be tre
like any other independent person with rights and liabilities: using a company to manage risk
avoid liability for debts is acceptable.
• Additional notes: Mr Salomon was actually a debenture-holder of his company. A debentur
broadly speaking, a long-term loan, and this is only important because debentures are o
"secured" by the assets of the company (i.e. if you don't repay, I'll sell your stuff to get the mo
back instead). This made Salomon a "secured creditor" of his own company. It gives Salomon's
claim against his own company "priority" once the company goes bust and has to sell its stuff to
off its debts. Usually, under this process, control over the company is granted to a "liquidator"
will "liquidate" the company's assets and pay off its debts, starting with secured creditors and en
at unsecured creditors. And quite a lot of the time, there isn't enough money left to pay
unsecured creditors. If the principle of separate legal personality was not upheld, then Salo
would not just have to personally account for the debts of the unsecured creditors--he would
have lost his priority over them in claiming back the money loaned.
