Moreover, the company has the right to be sued using its name. The incorporation of companies has different effects. For instance, incorporation of companies helps the company acquire a separate legal personality. When registering a company the registrar should ensure the company is incorporated. Though corporate personality has a lot of benefits, it has some disadvantages .It affects the members and the business in some cases. This paper analyzes corporate personality and shows how the statement provided is applicable to law.
There are various cases that show how companies are treated as separate entities from its members. For instance; the Salomon verses salmon and co Ltd case. In the 17th century most businesses which were conducted inform of partnerships or sole proprietorships were sold to companies (Fisk, 2009). The companies members were considered previous owners. For instance, Mr. Salomon had conducted his business as a sole trader and later sold the company to a company that was incorporated, A salmon and Co ltd.
The members in the new company were his wife, children and himself. The total numbers of members in the company were seven and they each had a one pound share. Mr. Salomon sold his business to the company for 39,000 pounds (Biondi &Canziani, 2007). After selling the company, Salomon used the money to subscribe for an additional share in the new company. The company did not pay Salomon the whole amount, but it issued him with a debentures.
Also, the company gave Salomon a floating charge on the companys asset as a security for the unpaid debts. After some time, the company went into liquidation. In case of liquidation, a person having a floating charge has the right to get the company asset. In this case, if Salomon had been able to force his floating charge, then the other creditors would not have got anything (Soifer, 1995). The liquidators and other creditors argued that Mr. Salomon should pay all the debts the way he would have carried out his business as a sole proprietors (Conaghan &Fischl, 2004).
But, Mr. Salomon did not agree with the decision because he had sold his business to a separate person. That is A Salomon and Co limited. Hence, Salomon had acquired limited liability to the company instead of unlimited liability. Corporate personality enables people to acquire limited liability. In limited liability the financial liability of a person is limited to a certain sum of money (Adams, 2002).
The sum is always equivalent to how much the person has invested in the company having limited liability. If a company having limited liability is sued, then the plaintiffs are said to be suing the firm, but not the owners of the company. In addition, shareholders in a company having limited liability are not responsible for any debts in the company, but for the amount of investment they have in the company. So, Mr. Salomon was not responsible for the companys debt as he had limited liability and also the company had limited liability (Mccahery, Picciotto &Scott, 1995).
In addition, only the company can enter into a contract in relation to the firms activities and property. In this case, the company carries out its activities without involving its employees. This is because the company has the right to carry out its business alone as outlined in the company law. Most of the businesses have been able to carry out business separately from its members (Deacon, 2004). This is evidenced by various cases that involve corporate law.
For instance, the Salomon verses A Salomon and Co limited case shows that companies are allowed to carry out their business alone. In the case, A Salomon Co. Ltd carried its business separately from its members. The company law gives the company a mandate to own property and enter into a contract. It also allows the company to incur debts. This is also shown in the Salomon verses A Salomon case where by the new company agreed to incur debts by failing to pay Salomon his money.
The company cannot blame its employees if any problems occur when carrying out its business. This is because the business is considered a person and it should solve its problems on its own (Tully, 2007). For instance, any defamatory statement that is made about the company does not affect the shareholders, creditors and employees. The statements affect the image of the company alone. On the other hand, the image of the shareholders, creditors and other employees remains intact as they are not part of the business.
Additionally, the company has the right to decide what to do incase of defamation. For instance, the company can decide to sue the person who defamed the company or not. If any member in the company defames the company, the company has a right to sue the member for the offense as he or she is separate from the company. Though the company is able to sue the person for destroying its image, the company does not get any aggravated damages. This is because the company does not have any feelings.
When the company is defamed there are no injuries caused to the feelings so its not able to get the compensation (Gilloly & Centre for Commercial and Resources Law, 1993). Aggravated damages are kind of compensation that is paid for injuries that are caused to feeling when a person is wronged. This is exemplified in the Collins Stewart limited verses financial times limited case. The financial times published an article in 2003 about the reputation of the Collins Stewart company.
The Collins Stewart company had been sued by an ex- staff (Geldart &Yardley, 2000). The financial times the allegations that had been made by the former employees of Collins Stewart. Then the Collins Stewart company and its parent company decided to sue the financial times for the damage they had caused. The company brought all the articles the financial times limited had published and the case between the company and the employee. The company combined the two cases so as to show the damage the financial times limited and the employee had caused to the Collins Stewart company.
In this case, the court argued that the Collins Stewart company could not be paid an aggravate damages as it had no feelings to be injured (Sornaraj, 2010). Though corporate personality has allowed companies to carry out their businesses, it has some down sides. For instance, it can lead to increase in crimes like fraud in the organization. This is because employees commit crime in the organization and claim that the company committed the offense. This might affect the organization negatively as those who committed the crime go unpunished.
Economic laws allow a person who committed a crime in the organization to be punished together with the company. Hence, the company should put strong measures to prevent such issues (MÃ¤ntysaari, 2009). Further, members of a firm have no interest in the firms property. The property of a company is considered the firms property, but not the property of the members. This is because the company is treated as a separate person from its members. Hence, the company has the right to decide which property to own and sell. The company does not have to consult employees, shareholders and other people when buying or selling property (International Corporate Law, 2003).
A member of business cannot claim compensation when the companys properties are destroyed. This is because he has no right to own the companys property. For instance, a company cannot sue the person who has caused the damage in order to get compensation for the damage. A company is viewed as the legal owner of assets or any other property in the company. It also viewed as the beneficial owner of the asset (Zerk, 2006). There are no rules in company law that entrust the companys property to members or any other person as a beneficiary (Blumberg, 1993).
Additionally, the members of a company cannot be said to be the beneficiaries of the property even if they have some shares in the company. On the other hand, a business can not become a trustee of the property under the rules used to create trust and select trustees. This is because it is considered a person like other people. This is shown in the Macaura verses Northern assurance company limited case. In the case, the owner of a timber farm sold the timber to a firm that he owned almost all the shares.
The owner was considered one of the biggest creditors in the company. The owner insured the timber against damage by fire using his own name. Later the timber was damaged by fire and he decided to sue the company that offered the insurance policy. During the trial, the court claimed that the owner of the timber did not have any right to own the timber, though he had a large amount of shares in the company. The court further noted that the owner or any other creditor in the company did not have any legal rights to own the property, but the property belonged to the company. Only the company was able to claim the damage (Cassidy, 2006).
Apart from the company having a right to own property, the members of a company are not able to sue anyone on the behalf of the company. The corporate personality ensures the company and the members in the company are separate. For instance, the employees, shareholders and the community are different from the company. The members of a business are not allowed to sue any person who wrongs the company on behalf of the firm.For instance, incase of looses of property or destruction of public image, the employees, shareholders or any other members are not allowed to sue the person who committed the crime on behalf of the business.
In this case, the firm is the one given the power to do so. Additionally, the company has the right to contract with the members in the company (Smith, 1999). This is because the company is a considered a person. So, the company is allowed to carry out transaction with its members. There are many ways in which a company carries business with its members. For instance, a company contracts with the members when paying shares (Ford &Austin, 1990).
The money the members pay for the shares belongs to the business as a person. When the company pays dividends to the members, the money it pays does not belong to the firm as a separate person. Further, the company can hire one of the members in the company under a contract (Shaw, 2003). This is because the company has the right to employ the embers either employees or creditors. This is evidenced in the Re eschange banking company and Flitcrofs case. The court claimed that the company was not only made of shareholders, but each shareholder has a right to transact with the company.
Also, the Wurzel verses Houghton main home delivery services limited case, the court argued that the company can work with its employees or other members. In the case, a vehicle that was owned by the firm was used to transport coal to some of its members. The members in return paid for the transport services. Some of the members claimed that the vehicle was not used for the right purpose as it was used to carry goods for hire. The court noted that the companys vehicle was being used well as the company vehicle was used to serve the companys members (Worthington &Sealy, 2007).
The corporate personality allows a company to overcome the death of the company members. When the members of a company die, the company does not cease to exist. This is because the company has the right to continue living (HohenVelden, 1987). The company continues as the owner of the property and parties of contracts that are not completed. This prevents the remaining representatives from loosing the companys asset. This is evidenced by a series of cases.
For instance, the Re Noel tedman holding limited. In this case, the Noel and his wife were the only shareholders in two companies. They were also the directors of the companies before their death. The death of the shareholders did not affect the companies. The two companies continued to exist. The companies were considered the owners of the property. They were also allowed to participate in contracts. The representative of the shareholders sought help from the court to enable them elect new directors. Where all the representatives are dead, the company can be disbanded by the registrar (Bhargava, 2008).
The veil of incorporation in company law refers to prevention of effects that result from separate corporate personality of a firm. It is often described using words like removing the veil of incorporation or piercing etc. It is also called removing the veil of corporate personality (Kempin, Wiesen &Bagby, 1990). It involves treating the rights of the company as the rights of its members. It also means considering shareholders in the company because of some legal benefits.
Treating the rights, liabilities and activities of a company like the rights of the shareholders, creditors have a lot of benefits to the organization. This is because it helps companies avoid the negative effects of corporate personality. Considering the members of a company when establishing the rights and liabilities of the company is common and there is no company law that can help prevent the process. Wedderburn argued that it is not time to know if a firm is a sham and when to remove the veil of corporate personality. In this case, a sham refers to pretence (Davies, 2003).
For instance, a person who is subjected to legal obligation uses a company to avoid the court decision and the court asks the person to abide with the obligation. The court terms the company as a sham. The statement is applicable in the development of the company law. The statement implies that people should be concerned with knowing whether the company is a not ethical and when to take away the veil of the corporate personality (Braithwaite &Drahos, 2000). This statement has contributed a lot to the development of the laws.
For instance, different countries have been forced to improve the company laws in the country to ensure equal benefits for all parties (Brodie, 2010). Before, the courts and other people did not understand the law and made decisions that were not ethical. For instance, a business man can leave his job in the firm as a director and sign a contract to avoid competition from the company for sometime and later establish a company to compete with the company left. In this case, the court would consider the new company as a fraud and allow the old company to sue the person.
The court does not take into account other rights that the new company and the person have. This has affected some people negatively and others have not been punished, but the company has been punished. As a result of the views different people have and the consequences of corporate personality, most people have looked for ways to improve the company law by incorporating the rights of the members and the company. For instance, the law has been improved to prevent members in a company to commit crimes and claim that it is the company. Before, a person was likely to commit a crime and accuse the company, but things have changed as a result of the above statement. This is because people have been forced to change the way they reason (Grantham &Rickett, 1998).
The corporate personality has its advantages and disadvantages. First, corporate personality gives the company numerous rights. For instance, it allows the company to own property without including its members. The company is always free to sell and acquire property from any one. It also allows the company to sue any person for causing damage without the help of the members. Thought the company is able to sue any person for damages, it is not possible to get aggravate damages. This is because the company does not have any feelings that can be hurt.
It also prevents the members in a company from suing the company incase of damages as the members and the companies are different entities. Also, the company has the right to incur debts without affecting the members. In this case, the members are not held accountable when the company incurs debts as they have limited liability. So, the employee should not pay the debts incurred by the company. Moreover, the corporate personality allows companies to continue surviving incase some of the key members like directors die. The company has the right to enter into contract and own property on behalf of the members who have died.
In some cases, the company can be disbanded if all the members die. The corporate personality denies the members in the company their rights. This is because the company does not consider the rights of the employees when establishing their rights. This causes negative effect on the members. The lifting of the veil of incorporation in the company helps overcome such issues as companies consider the rights of the members. The company law has changed for the last two decades. For instance, it has prevented courts from considering companies as fraud and lifting the corporate veil. Instead, the law has encouraged the integration of the rights of the members and the company.
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