1. Corporate Personality, Lifting the Veil and a Company’s Constitution
Business Law Lecture 4
Corporate Personality, Lifting the Veil and a Company’s Constitution

2. The Corporate Personality
Through incorporation a company becomes
a separate legal entity distinct from its members (shareholders) and those that work for it – its employees
Salomon v Salomon (1897)

3. Significance of Salomon
It recognised a company could legitimately be set up to shield its members and directors from liability
It implicitly recognised the validity of the
‘one man company’ and
III. The fact a person holds shares, even all the shares is not enough to create an agency relationship

4. Effects of a Corporate Personality
A company has limited liability
A company can sue and be sued in its own right
A company can be a party to contracts (eg buy goods, employ staff)
A company can continue to function after the death of a shareholder

5. Macaura v Northern Assurance & Co [1925]

6. Limited Liability
This refers to the liability of the members of a company NOT the company The liability of company members is limited to paying only the price of their shares If a company runs up millions of pounds of debt the members cannot be asked to pay more

7. The ‘Veil of Incorporation’
The law recognises a separation between the assets of a company and those of the members.
The barrier between the two is called the veil of incorporation

8. Lifting The Veil of Incorporation
Is done to:-
Attack the members behind the company
Reveal the true reality of what’s going on
Stop the company trading with the enemy
Stop fraud or other illegal acts

9. The constitution of a company
S.17 CA’06 provides this to be:-
A company’s articles of association; and
Certain resolutions; and
The Act itself

10. What is a constitution?
a written statement outlining the rules, powers, rights and practices under which a country, club company, council will operate A company’s constitution governs members, directors and other employees

11. The articles of association
This regulates the internal working of the company and typically covers the balance of power between members and directors, conduct of meetings, matters to do with shares and the distribution of assets
Promoters may choose to write their own articles or they can rely on the ones in the CA’06 known as the model articles
Articles are not generally written in stone

12. Special Resolutions
See lecture 5

13. What is the significance of the constitution?
S.33 CA’06 The provisions of a company’s constitution bind the company and its members to the same extent as if there were covenenats on the part of the company and of each member to observe those provisions

14. Hickman v Kent or Romney Marsh Sheepbreeders Association (1915)
The company failed to deal with the expulsion of a member in accordance with the company’s constitution The member went to Court arguing this was a breach of contract and the court found in his favour

15. The good points about incorporation
A company has its own personality and is a separate legal person.
A company’s members have limited liability.
A company can outlive shareholders.
A company can own property and enter into contracts.
A company can borrow money.

16. The bad points about incorporation
A company must comply with many statutory regulations.
Certain company documents are public ones for all to see.
3. A company can be sued just like a human being can for breach of contract or negligence.
4. A company can commit certain crimes like a human being – including manslaughter!