Company Law Course Wrap Up

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MGMT3046 Company Law: Course Wrap Up

November 2012

We have come to the end of formal instruction in Company Law, so it is useful at this point to review the main learnings from the course. This will be somewhat long! Unit1 Salomon v Salomon and the corporate veil. This is a foundational case in company law which enunciated the principle of the separateness of company and its members (shareholders and officers). The principle makes it quite clear that the separation of the company from its members will always hold; it is only in exceptional cases that the corporate veil will be lifted, such as in instances of fraud or other illegality. This means that a company may contract in its own name and, similarly, be held liable for breaches committed in its name. As mentioned before, shareholders and officers of the company will not usually be held liable for acts committed by the company. This leads directly to the concept of limited liability. Since a company is a separate legal entity, it follows that its members will not be liable for its debts. As a distinct legal entity, a company’s assets belong to it and not its members; its liabilities belong to it and are not the responsibility of the members. In the event of the company becoming insolvent or bankrupt, a shareholder’s loss would only be limited to the amount of unpaid shares he has outstanding in the company. In this way, a shareholder is afforded limited liability. Conversely, unlimited liability companies impose unlimited liability on its members. Ultra Vires. Ultra vires describes acts undertaken beyond (ultra) the legal powers (vires) of those who have purported to undertake them. The three main applications of ultra vires were: o whether the company acted outside is capacity; o whether the company’s agents acted in excess of authority; and o whether the company’s act was contrary to statutory provisions. This proved to create great difficulties for creditors as they might provide goods and services to companies which, when they refused or were unable to honour payment, were protected by the fact that contracts were deemed null and void and therefore unenforceable. Creditors had no recourse in the face of this issue. See Ashbury Railway Carriage & Iron Co Ltd v Riche. Ultra vires has since been abolished by statute such that, even though companies and its members may not be authorised to act in a particular way or to make certain decisions, they may still be liable for such unauthorised acts as against third parties. This concept will return again in other units. Unit 2 Lifting the Corporate Veil. The corporate veil does not provide blanket protection to the members and officers of a company. It will once they have acted carefully, honestly and in good faith. In cases of illegality and negligence, the veil may be lifted to expose the offending member to liability. Both statute and common law provide for the lifting of the corporate veil in such instances. This Session discussed the statutory exceptions to limited liability which include:


MGMT3046 Company Law: Course Wrap Up

November 2012

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reduction of number of members (it is to be noted that while a company may be operated with only one director under UK statute for up to six months, the same does not hold for Trinidad and Tobago); fraudulent and wrongful trading (these apply only during the winding up process [to be dealt with in further detail in Unit 8]; wrongful trading may be inferred from "reckless disregard" as found in s 447(1)(b) and (c)); disqualified directors (a director may be disqualified either during the course of normal operations of the company or during the winding up process); abuse of company names (this usually involves the transfer of company assets at an undervalue to the new company); and other named offences relating to documentation.

While the veil of incorporation usually affords protection to a company’s members and officers, the Court will lift it...
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