These are an in-depth study of Business Law and Practice. It includes a lot of statute law, case law, examples and plenty of summaries at the end of topics to allow you to revise these more easily after becoming familiar with the in-depth content.
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, Business and organisational characteristics
Sole trader Runs business on his own as a self-employed person e.g.
electrician, dog-walker
No formal steps taken to set up as a sole trader but must
register with HMRC for tax purposes
Majority of sole traders work alone. Can have employees
working for them as long as the sole trader owns business
alone
Personally liable for all debts of business (business has no
legal status of its own)
Has the right to make all decisions affecting the business
Owns all the assets of the business
Responsible for paying income tax on all profits of the
business
Has unlimited liability for the debts of the business
Partnership Occurs where 2 or more people run and own a business
together
Governed principally by Partnership Act 1890
S 1 PA 1890 – a partnership is legally formed when 2 or more
persons carry on a business with a view to making profit
Partners have no separate legal status (have unlimited liability
for the debts of the partnership)
When partner dies/retires, he will usually be bought out by
the remaining partners so partnership continues
LLP (Limited Formed under Limited Liability Partnerships Act 2000
liability Hybrid between a partnership and a limited company
partnership) It has separate legal personality distinct from its owners like a
company and it offers its owners the protection from liability
of a limited company
Ran with the flexibility and informality afforded by a
partnership
Can be formed by 2 or more members carrying on a lawful
business with a view of profit
Private Almost all companies are private limited companies
companies CA 2006 S 4(1) – ‘any company that is not a public company’
Unlisted public Companies who decide not to join a stock market are referred
companies to as ‘unlisted’
Legal personality and limited liability
Salomon v Salomon [1897] – case establishes that upon registration, a company becomes a
different person in the eyes of the law. This means that the company is different from the
shareholders and promoters. This is known as separate legal personality.
By virtue of existence, a company has the capacity to –
, Enjoy or acquire enforceable legal rights or property and,
Be subject to enforceable legal obligations
Implications of Separate Legal Personality – Breakdown
1. A company can own property in its name
Macaura v Northern Assurance Company [1925]
The owner of a timber estate sold all timber to a company which was owned almost solely
by him. He was the company’s largest creditor. He insured the timber against fire but in
his own name. After the timber was destroyed by fire, the insurance company refused the
claim.
H of L held – in order to have an insurable interest in property, a person must have a legal
or equitable interest in that property. Claim failed as ‘the corporator even if he holds all
the shares is not the corporation, neither he nor any creditor of the company has any
property legal or equitable in assets of the corporation’ (per Lord Wrenbury)
2. A company can sue and be sued
3. A company can enter contracts in its name
Lee v Lee’s Air Farming Ltd [1960]
Mr Lee’s accountant formed a company (Lee’s Air Farming Ltd) and Mr Lee was the
principal shareholder also the governing director of this company. The company
contracted with farmers to perform aerial topdressing. Mr Lee worked for the company
as a pilot and received a wage for that work. In a work accident, Mr Lee died and his wife
claimed on a workers compensation insurance policy that the company’s solicitor had
taken out naming Mr Lee as an employee. Insurer denied liability on the ground that Mr
Lee couldn’t be servant because he was director.
Judicial Committee of the Privy Council upheld Mrs Lee’s claims and firmly rejected the
insurers argument.
This confirms that a company is able to employ one of its members under a
contract of service including its principle shareholder.
Companies can contract with their members, directors and outsiders – developed
in Lee v Lee’s Air Farming.
4. A company can act tortuously or be a victim of tortious behaviour
Chandler v Cape Industries Plc [1990]
C had been employed by a company (X). X was a wholly owned subsidiary of the appellant
and was in the business of manufacturing incombustible asbestos. C discovered he had
contracted asbestosis as a consequence of exposure to asbestos dust whilst employed by
X. By that time, X no longer existed and had no policy of insurance that would indemnify it
against claims of asbestosis. C issued proceedings against appellant on the basis that
appellant and X were joint tortfeasors who were jointly and severally liable to pay
damages. Judge held that appellant owed a duty of care to C on the basis of the common
law concept of assumption of responsibility.
Appeal dismissed. Appellant owed a direct duty of care to the employees of X. The law
could impose on a parent company responsibility for the health and safety of its
subsidiary’s employees. These include a situation such as the instant case where:
1. The businesses of the parent and subsidiary were in a relevant respect the same
2. The parent had, or ought to have had, superior knowledge on some relevant
aspect of health and safety in the particular industry
, 3. The subsidiary’s system of work was unsafe as the parent company knew, or ought
to have known
4. Parent knew, or ought to have foreseen, that the subsidiary, or its employees,
would rely on it using that superior knowledge for the employees’ protection,
although it isn’t necessary to show that the parent company was in the practice of
intervening in the health and safety policies of the subsidiary
5. A company can commit a crime or be the victim of a crime
6. A company has perpetual succession
Piercing the Corporate Veil
Background
A company becomes a different person when registered. This is because upon
registration, a veil of incorporation separates the company from its shareholders
The corporate veil becomes important (a problem or solution) when the company begins
to experience financial difficulties
If a court decides to ignore/disregard this corporate veil, it is said that the veil of
incorporation has been pierced
Piercing the veil means ignoring the separate legal personality of the company and
treating the company and shareholder as the same person
When we say that someone is not personally liable, it doesn’t mean that the creditor
receives nothing. It means that the creditor will receive money, however it’ll be limited to
the amount that’ll be generated from the company’s assets.
Creditors bear the risk of insolvency
When will courts pierce the veil?
Earlier line of cases suggested courts had the discretion to pierce the veil where
companies had been used as a sham/façade to defraud others or hide the true state of
affairs.
E.g.
Woolfson v Strathclyde Regional Council [1979]
Jones v Lipman [1962]
Gilford Motor Co. v Horne [1933]
Gencor ACP v Dalby [2000]
In 2013, the Supreme Court in Prest v Petrodel took the opportunity to clarify when a
court could pierce the corporate veil
Prest v Petrodel [2013] UKSC 34
The Supreme Court recognises that courts have a limited jurisdiction to pierce the
corporate veil.
Lord Sumption states that the corporate veil can only be pierced where the evasion
principle applies.
Evasion Principle – applies where a person uses a company under their control to evade
(avoid) an existing obligation or to frustrate the enforcement of an existing restriction
Prest v Petrodel [2013]
Involved proceedings for ancillary relief in a divorce case. Seeking relief under the
Matrimonial Causes Act 1973, the wife was asking the court to transfer properties owned
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