(b)
In the words of Lord MacNaghten in Salomon V. Salomon and Co. Ltd.(1897). 'The company's at law a different person altogether from the subscribers to the memorandum'
This is the ratio decided in Salomon's case and constitutes one of the fundamental principles of company law.
In simple legal parlance the principle of legal personality of the company is to the effect that when a company is incorporated it becomes a legal person, distinct and separate from its members and managers. It becomes a body corporate or a juristic person. It acquires an independent legal existence with rights and subject to duties with certain capacities and subject to in capacities.
The principle of corporate legal personality is now exemplified by the words that 'From the date of incorporation mentioned in the certificate of incorporation, the subscribers to the memorandum together with such other persons as may from time to time become members of the company shall be a body corporate'
The most fundamental attribute of incorporation from which all other consequences flow is that on incorporation a company becomes a body corporate – a different legal entity. This principle manifests itself through the principle of:
i) Limited liability: Sec 4 (2) (a) and (b) of the Companies Act.
ii) Perpetual succession: Sec 16(2) of the companies Act.
iii) Sue or be sued: Foss V. Harbottle (1843)
iv) Owning of property: section 16(2) of the ActMacaura V. Northern Assurance Co.(1925)
v) Capacity to contract: Lee V. Lee's Air Farming Co. Ltd(1961)
vi) Common Seal: section 16 (2) of the Act.
A critical analysis of the Judicial and statutory authority demonstrates that the principle of corporate legal personality is incontrovertibly an important and fundamental aspect of company law.
This problem is based on the concept of piercing the corporate shell or simply put lifting the veil of incorporation or modifying the rule in Salomon's case. Both parliament and courts of law have recognized circumstances in which the veil of incorporation may be lifted and regard had to the individual members of the company and its subsidiaries are treated as one of regard it had to the economic realities of the group. These circumstances are exceptions to the rule in Salomon's case.
- Legislative or parliamentary or statutory exceptions
- Reduction in number of members: section 33 of the Companies Act.
-Non-publication or mis description of the Companies name: section 109 (4) of the Act. Group accounts: section 150-152 of the Companies Act.
- Investigation of companies affairs: section 167 of the Act.
- Investigation of company membership: section 173 of the Act.
-Fraudulent trading: section 323 (1) (a) of the Act. - Common law or judicial exceptions
- Agency trustee or nominee:
-Inre F. G. Films Ltd.
-Smith Stone and Knight V. Birmingham Corporation
- Firestone Tyre and Rubber Co V. Llewellin
-Group enterprises: Harold Holdsworth and Co V. Caddies
marto answered the question on February 7, 2019 at 06:10
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Two years ago, Smart Limited issued a series of debentures in favor of Tumaini Bank. The debentures were in the Standard Bank form described as...
(Solved)
Two years ago, Smart Limited issued a series of debentures in favor of Tumaini Bank. The debentures were in the Standard Bank form described as a fixed and floating charge over all the company‟s assets. There was an express term of the debenture that the company would not issue a subsequent fixed charge to rank in priority to the floating charge. Six months later, Smart Limited issued a fixed charge over its freehold property in favor of Mali Bank Mali Bank was unaware of the prohibition. Smart Limited has gone into liquidation and both banks are proving their debts on priority basis.
Discuss the legal position of each bank.
(c) The most common method of securing debentures is to execute a trust deed.
Explain the meaning of a trust deed and outline its advantages
Date posted:
February 7, 2019
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Answers (1)
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(a) The law governing the directors' duty of care and skill takes account of the fact that the director may be a part-time counselor rather...
(Solved)
(a) The law governing the directors' duty of care and skill takes account of the fact that the director may be a part-time counselor rather than a full-time professional manager.
Discuss.
(b) Mwerevu is one of the directors of Kamaliza Ltd. whose articles of association are in the form of Table A. He knows that his fellow directors are interested in obtaining motor vehicles from Modern Vehicles Ltd. to increase the company‟s fleet of trucks. Mwerevu purchases controlling shares in Modern Vehicles Ltd.
Modern Vehicles Ltd. then sells the trucks to Kamaliza Ltd. at Sh. 100,000 over and above the true market price. Mwerevu voted at the board meeting of Kamaliza Ltd. which decided on the purchase price, without revealing that he controlled the vendor company. When true facts are discovered, the company's board of directors does not protest against Mwerevu's conduct.
Mpole, a minority shareholder is aggrieved.
Advise him.
Date posted:
February 7, 2019
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Answers (1)
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(a) Joe owns 2000 shares in Lotto Limited and 1000 shares in Jolles Ltd. He sells all his shares in Lotto Limited to Janet and...
(Solved)
(a) Joe owns 2000 shares in Lotto Limited and 1000 shares in Jolles Ltd. He sells all his shares in Lotto Limited to Janet and 500 shares in Jolles Ltd. to Jeremy. All the shares in Lotto Limited are partly paid up. Six months later, Lotto limited goes into liquidation.
(i) In the absence of any express agreement, discuss the liability of Joe and Janet in relation to the company's debts.
(ii) State the steps to be taken to register the transfer of shareholding from Joe and Jeremy.
(b) Outline the exceptional cases when a member may be held liable in excess of the limited liability which he undertook when he became a member of the company
Date posted:
February 7, 2019
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Answers (1)
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(i)State the circumstances under which the objects clause of a company may
be altered
(ii) Explain the procedure to be followed in altering...
(Solved)
(i)State the circumstances under which the objects clause of a company may
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Date posted:
February 7, 2019
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In what way does the decision in the case of Macaura Versus Northern Assurance
Company Limited (1925) illustrate the corporate entity theory?
(Solved)
In what way does the decision in the case of Macaura Versus Northern Assurance
Company Limited (1925) illustrate the corporate entity theory?
Date posted:
February 7, 2019
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Tama Quin Ltd., a company manufacturing pharmaceutical drugs is about to make a new issue of 400,000 shares of Sh. 40 each at the current...
(Solved)
Tama Quin Ltd., a company manufacturing pharmaceutical drugs is about to make a new issue of 400,000 shares of Sh. 40 each at the current market price of Sh. 50 each.
The prospectus states: 'The company has just patented the manufacture of a drug that cures malaria.'
Jacob White, the managing director of the company is interviewed on television and he states that the news to be released shortly will demonstrate a great break-through in the control of malaria. He also stated that the company was the only one with modern technical knowledge of this great invention. As a result there is over-subscription of the shares.
Allan, who has not read the prospectus, applied for shares and is allotted 2000 at the price of Sh. 50 each.
Betty, who read the prospectus, is not allotted any shares but buys 3000 shares at the stock exchange at Sh. 60 per share.
Charles, who read the report of the interview in the national newspaper, bought 5000 shares at the stock exchange at Sh. 55 per share.
In the meantime, the patents are found not to be original and are revoked. The shares fall in value to Sh. 10 per share.
David who owned 10,000 shares in the company long before the new issue is disappointed as he believes the publicity has caused the shares to fall in price (value).
Advise Allan, Betty, Charles and David
Date posted:
February 6, 2019
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Answers (1)
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(b)
(i)State the circumstances under which the objects clause of a company may
be altered.
(ii) Explain the procedure to be followed in...
(Solved)
(b)
(i)State the circumstances under which the objects clause of a company may
be altered.
(ii) Explain the procedure to be followed in altering the objects clause.
Date posted:
February 6, 2019
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Answers (1)
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In what way does the decision in the case of Macaura Versus Northern Assurance
Company Limited (1925) illustrate the corporate entity theory.
(Solved)
In what way does the decision in the case of Macaura Versus Northern Assurance
Company Limited (1925) illustrate the corporate entity theory.
Date posted:
February 6, 2019
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Answers (1)
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What are the contents of the memorandum of association as stated in the...
(Solved)
What are the contents of the memorandum of association as stated in the
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Date posted:
February 6, 2019
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Answers (1)
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Enumerate the circumstances under which the court may order the winding up of a company on a just and equitable ground.
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Date posted:
February 6, 2019
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(i)What is a special notice?
(ii) Give the circumstances under which a special notice would be required with respect to company meetings.
(Solved)
(i)What is a special notice?
(ii) Give the circumstances under which a special notice would be required with respect to company meetings.
Date posted:
February 6, 2019
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State the Rule in Sharp-vs-Dawes and explain the exceptions to this rule?
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State the Rule in Sharp-vs-Dawes and explain the exceptions to this rule?
Date posted:
February 6, 2019
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What happens to a floating charge when it crystallizes?
Date posted:
February 6, 2019
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Discuss the rules relating to appointment and vacation of office of directors.
(Solved)
Discuss the rules relating to appointment and vacation of office of directors .
Date posted:
February 6, 2019
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Answers (1)
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a) James and Shem proposed to form a company by the name 'Micromine Limited'. On behalf of the proposed company, Shem entered into contracts to...
(Solved)
a) James and Shem proposed to form a company by the name 'Micromine Limited'. On behalf of the proposed company, Shem entered into contracts to purchase office furniture and stationery.
Required:
i) What are the company's rights and liabilities under such contracts after incorporation?
ii) What provisions for the protection of Shem are found in such contracts?
Date posted:
February 6, 2019
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Answers (1)
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Outline the documents that are normally kept at the registered office of a company.
Date posted:
February 6, 2019
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Distinguish between a corporation sole and a corporation aggregate.
Date posted:
February 6, 2019
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Highlight the circumstances under which a person may cease to be a member of a
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(Solved)
Highlight the circumstances under which a person may cease to be a member of a
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Date posted:
February 6, 2019
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Birds Limited has three directors: Peacock, Sparrow and Vulture. Explain the legal implication of each of the following situations: a) Vultures son has recently...
(Solved)
Birds Limited has three directors: Peacock, Sparrow and Vulture. Explain the legal implication of each of the following situations:
a) Vulture's son has recently come of age and vulture wishes to appoint him a director of
the company.
b) The company is considering the purchase of a substantial quantity of goods from fly ltd., in which sparrow has a large shareholding through he is not a director peacock and vulture are unaware of sparrow's interest in fly ltd.
c) Because of adverse publicity about peacock's private life, vulture and sparrow wish to
remove him as a director, since he refuses to resign.
d) In view of the adverse publicity, vulture and sparrow decide to exclude peacock from participation in the company's affairs.
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Date posted:
February 6, 2019
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Answers (1)
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To what extent does the doctrine of constructive notice operate negatively?
(Solved)
To what extent does the doctrine of constructive notice operate negatively?
Date posted:
February 6, 2019
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Answers (1)