Structure And The Corporate Veil Notes

Supervision 1 Structure and the Corporate Veil What is a "Company"? * * An entity created for lawful purposes with 1+ members registered in a Memorandum s7 CA 2006. The entity is bound by its Constitution per s17 CA 2006. * Division of Ownership & Control * * * Members invest and subscribe to the Memorandum of Association per s7 CA 2006. Each company must have at least one (human) director per s154155 CA 2006. Strictly, there are two decision making bodies in a company: # Shareholders in the General Meeting # Board of Directors in the general management of the firm * Separate Legal Personality * * * * * * The company is a legal entity distinct from its members per Salomon v Salomon. Thus, "once the company is legally incorporated it must be treated like any other independent person with its rights and liabilities appropriate to itself". This has been reaffirmed by the UKSC in Prest v Petrodel Resources. In Macaura v Northern Assurance Co "No shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein. He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up." However, the UKSC in Prest v Petrodel Resources noted Directors often ignore separate legal personality and "pillage" company assets. Haansman & Kraakman state that a "The firm's assets are not available to satisfy the manager's obligations, and the manager's assets are not available to satisfy the firm's obligations." This rule is often not adhered to by sole shareholder/manager businesses. Lee v Lee's Air Farming [PC] one person may function in dual capacities and thus, as agent for the company, negotiate a contract for services between the company and himself. Twigger v Safeway Stores Competition Act 1998 imposed personal liability on a firm in breach of competition law. This liability could not be passed on? thus Company couldn't sue directors, as agents, for causing the company to be subject to regulatory sanction. EXCEPTIONS: * Brumder v Motornet Services Director tried to sue company for injury sustained at work. HELD: Whilst the noncompliance with Health & Safety was the company's breach, the Director has a personal responsibility under s174 CA 2006 for due care and skill. As Director hadn't complied with Health & Safety, he was in breach of his s174 CA 2006 duty. Consequently, Director was a "wrongdoer" and under the common law principle, C cannot benefit from his own wrongs. * Limited Liability * * The default rule is that Members are liable for debts on windup per s74(1) IA 1986. However, the Members may limit their liability either by shares (s74(2)(d) IA 1986) or by guarantee (s74(3) IA 1986). These are the two forms of the company in s3 CA 2006. 1 

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