Corporate Personality: Salomon V Salomon

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  • Topic: United Kingdom company law, Corporation, Bankruptcy
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TOPIC 2: CORPORATE PERSONALITY:

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

(a)Consequences of the Salomon decision

See Cohn & Simitis (1963) 12 LCLQ 215-225: Kahn-Freund 7 MLR 54-59

(i)Status of one-person companies

-Lee v Lee's Air Farming Ltd [1961] AC 12

Companies (Single Member Private Limited Companies) Regs 1992 SI 1992/1699 implementing Directive 89/667/EEC OJ No. L395 30.12.89, p40.

(ii)Possibility of Limiting Liability -even for a small business owned by one person

(iii)Debentures as a means of minimising risk.

(b)Main Consequences of Companies' Corporate Personality

(i)Companies can sue and be sued in their own name

(ii)Companies enjoy perpetual succession

(iii)Companies can hold property and members have no property interest in company property: Macaura v. Northern Assurance Co Ltd [1925] AC 619

"Shareholders are not, in the eyes of the law, part owners of the undertaking. The undertaking is something different from the totality of the shareholding." Evershed LJ in Short v TreasuryCommissioners [1948] 1 KB 116 122

Tate Access Floors Inc v. Boswell [1991] Ch 512. per Browne-Wilkinson V-C at 531

"If people choose to conduct their affairs through the medium of corporations, they are taking advantage of the fact that in law those corporations are separate legal entities, whose property and actions are in law not the property or actions of their incorporators or controlling shareholders. In my judgement controlling shareholders cannot, for all purposes beneficial to them, insist on the separate identity of such corporations but then be heard to say the contrary when discovery is sought against such corporations."

2.EXCEPTIONS - "LIFTING THE VEIL OF CORPORATE PERSONALITY

See. e.g. Whincup, "Inequitable Incorporation" (1981) 2 Co Lawyer 158: Ottolenghi, "From Peeping behind the corporate veil, to ignoring it completely" (1990) 53 MLR 338; Charles Mitchell, "Lifting the Corporate Veil in the English Courts: An Empirical Study" (1999) 3 Company, Financial and Insolvency Law Review 3 pp15-28 and A J Boyle, The Company Law Review and "Group Reform" (2002) 23 Company lawyer 35-36 - available on Westlaw.

(a)Statutory Exceptions...
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