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COMPANY LAW - Chapter 3 The Company As a Distinct Legal Person, COMPANY…

- - - - Natural Persons (individuals);
      - Artificial or Juristic person
  - - - Limited liability partnerships
      - Chartered & statutory companies
      - Industrial & provident societies
      - Building Societies
      - Registered Companies
- - - - (front) Seven subsribers to the memorandum of association , i.e. seven original members or shareholders. Mr Salomon , his wife and his five grown-up children
    - - £9,000 was pain in cash (£8,000 of which, with no legal obligation to do so, Mr Salomon used to pay off debts of the business)
        
        20,000 shares of £1 each were issued to Mr Salomon, credited as fully-paid-up shares (i.e. the shares were regarded as having been paid for by Mr Salomon, not in cash but 'in kind', by the transfer to the company of £20,000 pounds' worth of the business)
        
        A £10,000 secured loan note, or 'debenture' was issued to Mr Salomon recording that the company owned Mr Salomon £10,000 secured by a charge over the company's assets.
    - - 4.1 The company found itself in debt and unable to pay its debts as they fell due.
        
        Mr Salomon cancelled his loan note, the debenture, and the company entered into loan arrangements/debentures with Mr Broderip who become a secured creditor of the company.
        
        The company failed to pay interest on the loan when it fell due and Mr Broderip exercised his right, as a secured creditor, to have a receiver appointed. Shortly thereafter the company went into liquidation. The company's assets were sold by the liquidator to realize cash to pay both the secured and the unsecured creditors of the company.
    - - In these unhappy circumstances, the liquidator brought an action against Mr B and Mr S alleging the loan notes issued by the company were fraudulent and invalid. The liquidator was successful at first instance and in the Court of Appeal but was appelaed to the HoL. Held: Mr S had done nothing wrong, was not liable for the debts of the compnay, and the loans between him and the comapny and B and the company were valid.
  - - - Lindley LJ preferred to hold that the company was the trustee to Mr. S who was the beneficiary. Described the company as, 'A trustee improperly brought into existence by him to enable him to do what the statute prohibits', therefore, he held, the beneficiary (Mr S) must indemnify the trustee, the company.