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LLB Notes Company Law - separate legal personality and lifting the corporate veil
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LLB Notes Company Law LLB Notes Company Law _separate legal personality and lifting the corporate veil
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separate legal personality and lifting thecorporate veil
what case established the doctrine of separate legal personality? Discuss it - ANS
Salomon v A Salomon & Co. Here Salomon was a shoe maker who incorporated a
company that had himself, his children and wife as members of it so that it would meet
the legal requirement for 7 members but it was only him involved in the running of the
business.
He overvalued his company when he was forming it and as a result fell into debt.
However, the court held that the company had a separate legal personality to him so his
assets were safe. This was because there was no fraud present and the company had
been validly formed.
what is the effect of separate legal personality? - ANS This means that the company is
a distinct juristic person from its members, directors, shareholders etc. This means that
the liability of members etc is limited, so their assets are not at danger when the
company itself is in debt to creditors. A key point, however, is that limited liability can be
excluded by s3(4) despite the fact it is a logical consq of SLP.
The company has the capacity to enter into contracts etc as if it was a natural person,
though its constitution can place limits on this. Finally perpetual succession applies
meaning that the company continues despite any change in membership.
discuss the case law which expanded on the Salomon judgement - ANS The first to do
so was Lee v Lee's Air Farm. This showed that the special position of governing director
did not preclude someone from being a servant of the company- in this case being more
pronounced in that the widow's husband had held all but one share and the articles of
association stated he was an employee. Therefore, his widow could claim the NZ
benefits for the death of a worker during employment.
Macaura v Northern Association highlights the fact that SLP is not a two edged sword.
Here an insurance was taken out in the pursuers name and it was held to be
irredeemable since it secured the company's assets; since the company was legally
distinct he could not claim against them since he did not have any title to them.
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