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Topic 2.4: Incorporation and its effects - Coggle Diagram
Topic 2.4: Incorporation and its effects
Registration for incorporation
Section 15 of Companies Act 2016:
The
Registrar
will
issue notice of registration in the form and manner as the Registrar may determine.
Section 19 of Companies Act 2016:
Notice of registration
serve as
conclusive evidence
that a company has been duly registered
and all requirements of the Act have been complied with.
Section 17 of Companies Act 2016:
Upon an application by a company and on payment of a prescribed fee
, the
Registrar may issue a certificate of incorporation
in a manner as the Registrar will determine.
Effects of incorporation
Section 18 of Companies Act
On the
date of incorporation as in notice of registration
–
there shall be company by the name and registration number as stated and will be kept by the Registrar.
Every person whose
name stated as a member in the application of incorporation
shall
become members in the company.
If
the
company has share capital
, every
person whose name is stated in the application
become
the
shareholder
of that company.
The
person named as a director or secretary in the statement shall
be deemed to be
appointed in that company.
In summary,
section 20 and section 21
of CA 2016
provides the effects of incorporation
to the company is that:
A
body corporate
(a company which has a legal existence)
Have legal personality
separate from its members
Continue in existence until it is removed
(perpetual succession)
Capable of exercising all functions
as an incorporated company
Capable of
suing and be sued
Has
power to acquire, own, hold, develop or dispose of property
Has
power to enter into transaction
Principle of separate legal personality
Case: SALOMON V SALOMON & CO (1897)
This case established the principle
that a
company is a separate legal person from its members
/ shareholders.
Once the company has been incorporated, the courts do not look behind the veil to find out why the company was formed or who really controls it.
This
principle is also known as
the
veil of incorporation.
Case: SALOMON V SALOMON & CO (1897)
Outline
Mr. Aron Salomon was a leather merchant and a boot manufacturer. He incorporated a registered company. He himself held 20,001 shares and each of 6 members of his family held 1 share. He then sold his business to the company. All the shareholders knew of and approved the arrangement.
The company owe Mr. Aron 10,000 debentures.
Later, the company went into liquidation. The creditors, whose claims could not be paid in full, tried to press their claims against Mr. Salomon on the basis that he and the company was actually the same one entity.
When the company went to liquidation, Mr. Aron does not in charge in company anymore.
The House of Lords held that the company was a different legal person from Mr. Salomon and the creditors could not sue Mr. Salomon.
Applications of the principle of separate legal personality
From this principle
of separate legal personality,
it follows that
:
The
debts of a company are the responsibility of the company
and
not its shareholders/members
A
company can own assets
and the
shareholders have no share (proprietary interest) in those assets
A
company can enter into a contract with a shareholder
A
company must sue in its own name
, and
not in the names of its members
, for any wrong committed against it