“A company is a legal person and its equity is quite distinct and separate from its members. It can purchase and sell the properties in its own name, can open bank account in its own name and can enter into contracts. Since a company has a legal personality distinct from that of its members, a creditor of such company can sue only the company for its debts and not of its members.”
It is like a fiction created by the law. A company have their own legal personality and independent statue. A company having a separate from its members. In the other word, it has a independent corporate existence. Company money and property belong to the company and not to his shareholders. Company have their own corporate personality. It is a distinct legal persona existing independent of its members.
For Example:- Ram and company ltd. is entirely different from the person ‘Ram’ even if he is the whole and sole managed and owner of the company. The company property and money not belong to the ram.
1.) CASE NAME – SALOMAN v SALOMAN AND Co. Ltd. (16 NOVEMBER 1896) UKHL 1, AC 22
Court – House of Lords
Case opinions – Lord Macnaghten, Lord Halsbury and Lord Herschell.
Keywords – Separate legal Entity (personality), Corporation.
Salomon v a Salomon & Co. Ltd. Is a landmark Case in UK court of Company law. The House of Lords upheld the doctrine of corporate personality, which is set out in the companies act, 1862. In a simple language creditors of an insolvent company can’t sue the company’s shareholders for any payment of outstanding debts.
FACTS OF THE CASE:-
- Mr. Aron Salomon was a sole trader of a boot and shoes manufacturing company in England. He then incorporated a company named Salomon & Co Ltd, to take over and carry on his business for £39,000. Now we look at the memorandum of company, they had 7 subscribers.
- The subscribers of Salomon & Co Ltd (Under the Companies Act 1862) were Salomon, his wife, his daughter and four sons, and they remained the only members of the company.
- Mr. Salomon held 20,000 shares whereas the other six shareholders held one share each. The company owed Mr. Salomon £10,000 and gave him debentures for this amount giving him a floating charge which entitled him to payment in case of liquidation of the company. Now what happens, that after a year the company goes into a phase of Liquidation.
- When we look at the assets and liabilities of the company, it had a assets of total 6000 pounds and they had liability of total 17000 pounds. The division of 17000 was like that 10000 pounds gives to the Salomon and 7000 to the unsecured creditor.
- The Edmund Broderip (unsecured creditor) claimed that in reality the company and Mr. Salomon were the same entity so he didn’t deserve or claim the compensation out of liquidation.
- In the case it was claimed by certain Edmund Broderip (unsecured creditors) in the liquidation process of Salomon Ltd., in which Salomon was the majority shareholder, for Salomon to be made personally liable for the company’s debt.
“Whether regardless of the separate legal identity of a company, Mr. Salomon should be made responsible for the company’s debts and shouldn’t be paid. He argued that Salomon had breached his fiduciary duty to the new company he was promoting by selling his business for an excessive price. He also argued that whole company in this way intended as fraud against the unsecured creditor in future”.
“It was held that since a company is a separate legal entity distinct from its members Mr. Salomon, the founder of a Salomon and Company, Ltd., be discharged from the personal liability to the creditors of the company”.
The court also upheld the doctrine of corporate personality so that creditors of an insolvent company could not sue the company’s shareholders to pay up outstanding debts. It is to be observed that both the Courts treated the company as a separate legal entity distinct from Salomon and from the members.
RELEVANCY OF THE CASE:-
“The concept of the lifting of the corporate veil was introduced after this case where no person could hide behind the company’s veil to commit fraud and avoid liabilities. This case is a landmark case in Company Law”.
2.) CASE NAME – Catherine lee Vs. Lee’s Air Farming Limited (11 November 1960) UKPC 33, AC 12 .
Court – Judicial Committee of the Privy Council.
Keywords – Separate legal Personality.
FACTS OF THE CASE:-
1.) In this case, there is an one company whose name is Lee Air Farming Company Ltd. whose total share capital was of 3000 shares, from which Mr. Lee had total 2999 shares and Mr. Lee himself as managing director and chief pilot of the company. This means he also remain as a salaried employee of the company.
2.) Lee, while flying plane for the company Lee’s plane crashes in which he also dies. Hos wife then made a claim for workmen’s compensation under the New Zealand workmen’s compensation legislation.
3.) In general, there is always relation of master and servant between the company and their employees. It means during the course of employment if any servant (employers) get injured or damaged that master should compensate him.
4.) So on the based on this principle of Lee wife demands a compensation amount from the Lee Air Farming Company Ltd.
Whether Mr. Lee can be classified as a worker? (Mrs. Lee entitlement to compensation wholly depend on whether or not Mr. Lee was a worker i.e. an individual who has entered into a contract of service with an employer. In simple language, the question is arise that, whether the Mr. Lee and Lee Air Framing Company Ltd. were two separate entities or were same entities?
The insurance company said that, when this accident happened the Lee was a master also because he was a managing director of the company and at the time was employee also, because he was a chief pilot of the company. Insurance company said that they both are same person and based on this statement, the widow of Mr. Lee will not get any compensation.
“However, the council allowed Mrs. Lee’s claim stating that Mr. may are the controller of the corporate actually, but in law, they were distinct persons. He could, therefore into a contract and will be considered to be an employee. The widow was, therefore, entitled to a gift in respect of workmen’s compensation”. The court held that, Mr. Lee and Lee Air Farming Company Ltd. were two distinct personalities, Mr. Lee had the power and able to act as a master and as a servant also at same time. The compensation was given to his widow wife, because they both have a separate legal entity.
RELEVANCY OF THE CASE:-
“This case upheld that albeit an individual owns all the shares during a company, he doesn’t own the company’s property, nor does he have any legal or equitable interest there. He doesn’t even have an interest within the company’s property which will be insured”.
I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.
If you are interested in participating in the same, do let me know.
The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.
If you would also like to contribute to my website, then do share your articles or poems at email@example.com
We also have a Facebook Group Restarter Moms for Mothers or Women who would like to rejoin their careers post a career break or women who are enterpreneurs.