Commercial And Corporation Law Act Essay

Question:

Discuss about the Commercial and Corporation Law.

Answer:

Issue

The concern of the case is to determine whether an issue of a certificate of incorporation a company will become a separate legal entity from its shareholders.

Rule

As per the Companies Act, 2006 a company is incorporated under this act and can become a separate legal entity from its shareholders. When a company becomes registered under the Companies Act, it becomes a separate legal entity. It is regarded as a separate entity from its shareholders, directors and promoters at law. A legal person is considered as a being or entity who has the ability to obtain enforceable legal rights and become subjected to enforceable liabilities and legal obligations. These principles were drafted in clarity under the Companies Act. The principles of the separate legal personality of a company are a significant part of the company law as observed. There are consequences of a separate legal entity. Since an individual is separated from the members, the organization itself charges the business and enters into contracts. A separate legal entity is a company has the right to transfer and create contracts in its own name. If one of the shareholders forms a company, the company has the power to employ him under a contract of employment. Therefore, that person such a person would be playing the role of a shareholder, employee and a director of the company simultaneously. Thereafter, if the principle of separate legal personality is applied then it would be a one hand company and in another way one person in three functions. It describes the link between the entities of the company and guarantees that are correlated rights such as compensation. In the case of Solomon v Solomon & Co Ltd 1897 AC22, it introduced the concept of a separate legal entity personality of a company. In the said case, Mr. Solomon can be distinguished entirely from the company. A separate legal entity and the liability of the members are limited by shares and guarantee (Bainbridge 2015). According to the Companies Act, when a company acquires its own property the shareholders does not have any direct rights to the company. They cannot exercise any power or rights on the company being the shareholder. This instance was proved in the case of Macaura v Northern Assurance Co 1925 AC619. In this particular case, Mascaura had shifted timber from his estate to his company and extracted the insurance particularly with his own name instead of the name of the company. Thereafter, the timber was ruined in a fire. In the matter of Battle v Irish Art Promotion Centre Limited [1968] IR 252, the Court had decided that while an individual represents himself in the Court, a company can only be characterized by a lawyer. The veil of corporation is involved in such cases. However, the veil of incorporation can have a few circumstances. The Court can only be disregarded by the court depending on the matter. The Companies Act discussed about the incorporated and unincorporated business. As per law, incorporated business, which is also known as a corporation is a separate legal entity from the owner of the business and it has natural rights (Dyllick & Muff 2016). On the other hand, the unincorporated businesses are defined as the sole proprietor or the partnership companies. A company resolution is treated as a corporate action that comes in form of a legal document on which the board of directors can vote. Under the Companies Act, 2006 it is defined as a formal method in which companies jot down the decisions made by the company members in the meeting. However, under the Corporations Act, 2001 maximum number of decisions that affect the needs of the company should be made by a resolution. As per the Corporations Act, 2001 the major decisions that affect the company’s need to be made by a resolution. Constitution of a company has its own set of rules in the constitution. For a resolution to get passed it must go through the criteria process (Grayson & Hodges 2017). The resolution is usually passed at a meeting. It puts the resolution in the records of the company within one month of the meeting being held. However, three of these constituents are inter linked as without these three a company cannot be formed (Dhingra,, Anil Sarin and Gill). Step by step each of the constituents should be fulfilled only then a registered company can be created. Without filling the document of Memorandum the rest cannot be completed. Therefore, it can be observed that the rate of risk is associated when the insurance is engaged. However, limited liability and separate legal entity are not similar. The company itself is the entity that holds and conducts the business, enters into contracts and has the power to sue and get sued. In such a situation, the members cannot be sued. This is treated as a benefit for the members of the company. The members will not be accused of being responsible for the liabilities of the company because the company itself is a separate legal entity.

Application

It has been provided in the Companies Act 2006 that the separate legal personality of a company is one of the most basic principle of company law. As observed in the case of Solomon v Solomon, this principle defines the legal connection between the members and the company. The moment the Registrar issues the certificate of incorporation, the organization will come into existence with its personality of separate legal entity; it will continue to exist indefinitely (Porter & Kramer 2019). Therefore, from that time onwards, a company will be considered an independent person with its rights and liabilities that are appropriate to one. It naturally becomes a separate entity from the shareholders after the process of incorporation. In the matter of Cowan v Jeffrey Associates, this concept was applied and it followed the rules of the Company Law. A company’s identity is separated from that of the shareholders. As per the law, the company is a constratsting person from the subscribers to the memorandum (Manchiraju & Rajgopal 2017). The company itself is the entity that holds and conducts the business, enters into contracts and has the power to sue and get sued. In such a situation, the members cannot be sued. This is treated as a benefit for the members of the company. A company has three basic principles. Firstly, as per the law, the capacity of the company is prohibited to both by the general essentials of the company and more because of the common law, to the actions that can be both appropriate and lawful to the natural objectives. Secondly, within the nature of its particular aims the company is bestowed with the legal capacity for the proprietary, things related to contracts and other aims, which is of the same nature as that possessed by natural persons of full capacity. This capacity can clearly be separated from the people who ultimately form the company’s membership (Veldman 2018). Thirdly, of its both members and outsiders accord the company has a capacity of full and independent procedural. From the amalgamation of the above mentioned flow of the principles are all the famous practical characteristics of separate legal entity. For instance, due to its separate proprietary and other capacity the company can enjoy continuous existence and its usefulness as an entity for purposes like keeping a check that has given a legal foundation, and the possibility is opened to that of its members may limit their liability. The members will not be held responsible for the debts of the company because the company itself is a separate legal entity. Solomon v Solomon proved that the organization was not considered as an agent of its shareholders. An individual can become a shareholder in a company by obtaining shares but that person will not be a part of the company. Law at one member limits the sole of the corporations at any given time. Unincorporated businesses are generally the extensions of the owners. The existence of the businesses varies on the existing span of the owners. As long as the owners are alive, the business will exist. An incorporated business does not depend on the owners of the business (Dyllick & Muff 2016). Therefore, an incorporate business can last for a lifetime as it is not associated with the life span of the owners in the company. In unincorporated business, it gets tough to transfer the interest in the business to a third party. However, owners of unincorporated businesses have the right and authority to share the assets of the business. Incorporated businesses are claimed to be independent. The interest of an owner can be shifted without any hassle and without affecting the business. Sole Proprietorship, corporation, partnership, territorial incorporation falls under the different categories of incorporated and unincorporated business organizations that exist. The sole of the corporations are attached as an incident of an office. The owners of registered companies does not restrict their liability to donate the amount to the company so that it can contribute monetary sums to the company so that the company is able to pay the sum to third parties (Benn, Dunphy & Griffiths 2014). Limited liability is also a choice that is available to the incorporators of a registered company. The consequences of the concept of separate legal entity can be applied in the cases once the company is incorporated. The main consequences consist of the company debts and the difference between the private and company debts. The debts are undertaken under the name of the company as well as not to the controller or the director of the company.

Conclusion

After observing the cases and going through the legal concept, it can be concluded by stating that once the certificate of incorporation of a company is issued, it naturally becomes a separate legal entity from its shareholders. As it is analysed from the above discussion, possible considerations can be done. At first, the separate legal personality Salomon v Salomon has been followed diligently. This has been implied that if during the initial of twenty century there were a few companies and more partnership, it is true to the contrary (Conway & Kavanagh 2015). It forecasts the situation and facts that it has replied to both to the political will and social needs. On contrary to this, it has facilitated the development and growth of economy, and it has granted to provide the prospect for everyone to be part of economy without being associated in any kind of liability except to the extent of her or his investment. This has assumed and implied that the company as a separate legal personality carries on its business, owns the property, enters into the contracts and has the power of suing and being sued but not the members of the company.

References:

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Porter, M. E., & Kramer, M. R. (2019). Creating shared value. In Managing Sustainable Business (pp. 327-350). Springer, Dordrecht.

Veldman, J. (2018). The Separate Legal Entity and the Architecture of the Modern Corporation.

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