Corporate Personality Notes

Section One: Corporate Personality Once a company is created, it has the status of a legal person - it still needs contact with people though e.g. owner, manager, employees. Shareholding gives you the right to receive surplus profits (dividends), and take part in some decisions. Directors who are also employees are called executive or inside directors. Non executive directors or outside directors are not part of the company, but people with expertise. Salomon v Salomon: - Liquidators claimed the price paid by the company exceeded the real value of the business. - Described as a 'fraud on the creditors of the company' - no board of directors was ever appointed. - The business had been prosperous, perfectly solvent when it was bought, and was in a sound condition when transferred to the company. Once the company is legally incorporated, it must be treated like any other independent person. The motives of those who took part in the promotion of the company are absolutely irrelevant. - Purpose of the Act: The legislature did not prohibit transferral of the business to the company, regardless of motives. It is impossible to deny the validity of the transactions into which it has entered. When all the shareholders are perfectly cognisant of the condition under which the company is formed and the conditions of the purchase, it is impossible to contend that the company is being defrauded. The unpaid creditors could have informed themselves of the terms of purchase of the company. The company attains maturity on its birth. The company is at law a different person altogether from the subscribers to the memorandum. The creditors had "full notice that they were no longer dealing with an individual". The courts can look behind the company to the shareholders (lifting the corporate veil) if they think the company is a sham. Lees Air Farming: - Insurance policy for workers - Workers Compensation Act - Mr Lee was a worker and a director, died while he was working. Court of Appeal thought "special position of governing director precluded him from being a servant of the company" House of Lords thought "if it be accepted that the respondent company was a legal entity, their Lordships see no reason to challenge the validity of any contractual obligations which were created between the company and the deceased." A person may function in dual capacities. "Two separate and distinct legal persons"

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