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SEPARATE ENTITY PRINCIPLE W4 - Coggle Diagram
SEPARATE ENTITY PRINCIPLE W4
Lee V Lee's Air Farming Ltd [1961]
Primary shareholder & Director (owned all shares)
Employed as
pilot & died
Widow claimed under Worker's Compensation Act
Court of Appeal NZ held as shareholder & director, could not be employee
Lord Morris: it was possible for a person to do so in a dual capacity hence can’t deny possibility of contractual relationship between deceased and company because of Salomon.
DEFINITION
Separate legal personality distinct from its owne
r
can
sue & be sued
can enter into
contracts
creditors have no claim against the
PERSONAL ASSETS
of the
MEMBERS
Borne from
Case law
Salomon v Salomon & Co Ltd (1897)
Primary shareholder, wife & family 6 shares
£10,000 floating charge over assets
Primary shareholder & creditor
LIQUIDATOR
Alleged co was
SHAM
Co was
AGENT
of Mr Salomon
Mr Salomon
PERSONALLY LIABLE
Treat
as if SOLE TRADER
Trading losses, mortgage, arrears, claimed priority as
his charge registered first
COURT OF APPEAL
"It was never intended that the company to be constituted should consist of one substantial person and 6 mere dummies."
"A mere
sham."
"scheme" "to
defraud creditors"
"The
pretended sale
to the company was
utter fiction
."
HOUSE OF LORDS
"
The motives of those who took part in the promotion of the company are absolutely irrelevant in discussing what those rights and liabilities are."
Rejected previous court, the
company was duly incorporated
CONTROVERSIAL
Believed allowed dishonest people cheat their creditors
"instrument for cheating honest creditors"
ADVANTAGES
Own
PROPERTY
Enter
CONTRACTUAL RELATIONS
with natural persons & other companies
Commit
CRIMINAL OFFENCES
Take
LEGAL Proceedings
& be
SUED
SECRETARY OF STATE FOR TRADE & INDUSTRY v BOTTRIL [2000] BCLC 448
Repeated decision in Lee
No rule of law that a
SOLE DIRECTOR could not be an EMPLOYEE
& be entitled to
REDUNDANCY
payment on
LIQUIDATION
ROUNDABOUT LTD v BEIRNE & OTHERS [1959]
Marian Parks Ltd
dismissed all unionized
pub employees
New company
, non-unionized barmen as directors
Injunction
to restrain former employee protestors
Held: New company is
DISTINCT ENTITY
. Effective Legal Subterfuge
TURNSTALL V STEIGMAN [1962] 2 QB 593
Landlord and tenant, notice
Company in business, so no right to repossess under statute
MACCAURA v NORTHERN ASSURANCE COMPANY [1925] AC 619
Timber policy in name of member, not company
Shareholder DOES NOT have insurable interest in assets of company