Lectur 2 Legal Personality Corporate Capital.pptVIP

Lecture 2 Legal Personality Corporate Capital the personality of corporation 1. DefinitionCorporation is regarded as a distinct legal entity with a separate existence from its membership and management team.We regard this independent and separate existence as the corporate personality. Case: Salomon v. Salomon Co. Case: Salomon v. Salomon Co.Salomon had for many years carried on a prosperous business as a leather merchant. In 1892 he decided to convert it into a limited company and for this purpose Salomon Co. Ltd was formed with Salomon, his wife and five of his children as members and Salomon as managing director. The company purchased the business for 39,000 pound. The price was satisfied by 10,000 in debentures (secured by the company’s assets), 20,000 in fully paid 1 pound shares. The result was that Salomon’s wife and children held 1 share each, and the rest of the shares are held by Salomon. The company ran into difficulties a year later, then the creditors of the company appointed a receiver and the company went into liquidation.its assets were sufficient to discharge the debentures but not for the unsecured creditors.The trial court and court of appeal held that the whole transaction was contrary to the true intent of the Companies Act and the company was a mere sham, Salomon was liable to indemnify the company. But the House of Lords unanimously reversed this decision. They held that the company has been validly formed since the Act merely required seven members holding at least one share each. It said nothing about their being independent. Hence the business belonged to the company and not to Salomon.Since the Salomon case, the complete separation of the company and its members has never been doubted. Only in a few circumstances, the court would allow the pierce of corporate veil. 2. The nature of corporate personality 2.1 legalityThe independent existence of corporation from its investors is reflected and respected by law.2.2 independenceTh