Company law I 2008 2009 semester one lecture outline I an overview of our company Law Course


TOPIC 2: CORPORATE PERSONALITY: The Foundation of Company Law



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TOPIC 2: CORPORATE PERSONALITY: The Foundation of Company Law



Reading:


  • Gower and Davies, 8th Edition 2008, Chapters 8 and 9

  • Hicks & Goo 6th Edition Chapter 3 and Chapter 20.12.


1. The Doctrine Established:
Salomon v Salomon [1897] AC 22
"It seems to me however that when one considers the fact that these shareholders were nominees of Mr Salomon's, that he took the whole of the profits and that his intention was to take the profits without running the risk of debts and expenses, one must also consider the position of the unsecured trade creditors, whose debts amount to some £11,000. As I have said, the company was a mere nominee of Mr Salomon’s ... and therefore I wish, if I can, to deal with this case exactly on the basis that I should do if the nominee, instead of being a company, had been some servant or agent of Mr Salomon's to whom he had purported to sell his business." Vaughan William J. at first instance; Broderip v Salomon [1895] 2 Ch 323 329
"Either the company was a legal entity or it was not. If it was, the business belonged to it and not to Mr Salomon. If it was not, there was no person and nothing to be an agent at all.": Lord Halsbury [1897] AC 22
"In a popular sense a company may in every case be said to carry on business for and on behalf of its shareholders; but this certainly does not in point of law constitute the relationship of principal and agent between them or render the shareholders liable to indemnify the company against the debts which it incurs.
The company is at law a different person altogether from the subscribers to the Memorandum [shareholders] and though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers and the same hands receive the profits, the company is not in law the agent of the subscribers or a trustee for them. Nor are subscribers as members liable in any shape or form, except to the extent and in the manner provided by the Act": Lord Macnaughton, ibid 51



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