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C2: SEPARATE LEGAL ENTITY - Coggle Diagram
C2: SEPARATE LEGAL ENTITY
S.20 (1): Co incorporate under this act shall have:
20(1)(a): legal personality separate from members
20(1)(b): continue exits until removed from register
21(1): capable to exercise all functions & have full capacity to carry
21(1)(a): to sue and be sued
21(1)(b): develops/holds/owns/dispose property
21(1)(c): enter into transactions
Case: Salomon v. Salomon & Co Ltd (1897)
Mr. Salomon was a sole-proprietor which manufactured leather boots
his sons then wanted to become partner, so change to limited co
his wife & 5 eldest children became subscribers & 2 eldest sons became directors
Mr. Salomon gave co loan $10,000
after incorporated this co, the sales started to decline due to low supplies
a lender, called Mr. Broderip sued to claim his money & claimed his priority as a lender is higher than Mr. Salomon
Court held that:
Mr. Broderip could sue for money
Mr. Salomon cannot be higher in rank than Mr. Broderip as a lender
Mr. Salomon is no priority as a creditor
Mr. Salomon can be liable to the co's creditors
House of Lords held that:
Lord Macnaghten: the co "Salomon" is different from Mr. Salomon. even he is the member of the co, he can lend money to co
the separate entity principle applied, so both co & Mr. Salomon are two separate entities.
Case: Lee v. Lee's Air Farming Ltd (1961)
facts: co issued 3000 shares, 2999 allotted to Mr. Lee & 1 held by his solicitor
Mr. Lee was also its managing director, employed by the co as pilot
co provide a workmen's compensation insurance naming Mr. Lee as employee
Mr. Lee worked as pilot and was killed whilst work & his widow claimed under policy.
Issue: whether Mr. Lee could be a worker as he was in full control of company?
Decision: Co was separate legal entity & therefore, Mr. Lee could enter into contract of employment with co
Case: Yee Yut Ee (1978)
Facts: Mr Yee was director of the co. The co retrenched its staff. Industrial Court held that the staff should be rewarded due to the retrenchment
as co failed to comply, Industrial Court made order that Mr. Yee was liable to pay the benefits
Mr. Yee appealed - Issue: is Mr. Yee liable to retrench the staff?
Court held: as director, Mr. Yee was not personally liable unless there is fraud committed
Mr. Yee and the co are separate legal entities
it was the co who failed to comply, not Mr. Yee
EXCEPTIONS TO "SEPARATE LEGAL ENTITY"
Statutory exceptions:
wrongful trading
fraudulent trading
misapplication of money
dividends are overpaid
failure to contribute to EPF
c)
Misapplication of money
: the officer is liable, co not
d)
Payment of dividends exceed profit
: officers liable for amount in excess or amount due to creditors (whichever is lower)
officers are personally liable, co not
b)
Fraudulent trading
: when officer carries business with intent to defraud the co's creditors.
directors are personally liable, the co not
e)
Failure to contribute to EPF
: employer 12%, employee 11%
there is case where employer have deducted the salaries but failed to remit contribution
directors are liable, co not
a)
Wrongful trading
: officer knowingly contracted a debt for the co at a time he had no reasonable that the co would be able to pay the debt.
the officer is liable, the company is not
Judicial exceptions:
b)
Co incorporated to avoid his contractual obligations
:
Case: Jones v Lipman (1962)
Facts: Mr. Lipman wanted to sell a house to Mr. Jones for $5,250. he then changed his mind and refused to sell
to avoid transfer the house, he transferred the house to co he created for this purpose
held: Mr. Lipman is liable and not the co
c)
Group of co can be one and same entity?
:
Case: Hotel jaya PuriSdn Bhd v. National Union Bar & Restaurant Workers (1980)
facts: Jaya Puri Chinese Garden Restaurant Sdn Bhd was closed down & workers were cut down. co was wholly-owned subs of Hotel Jaya Puri
Union claimed that actual employer was the hotel & still in business. therefore, the workers were fired rather than retrenched
court held: the restaurant and hotel should be treated as one entity
a)
Co in corporated for fraud or improper purpose:
Case: Re Bugle Press Ltd (1960)
3 SH in Bugle Press named J, S & T.
J & S wanted to purchase T's shares. T refuses to sell
J & S incorporated another co ( J&S Holdings Ltd.)
they used the new co to buy the shares
Issue: Can court hold J&S personally liable or J&S Holdings?
Held: J&S Holdings was created to buy T's shares. They are same people and one entity
J & S are personally liable for improper purpose, it was not done in good faith
d)
Co incorporated against public policy:
Case: Daimler Co v Continental Tyre and Rubber Co (1916)
facts: co incorporated in England, but SH were Germans. The business place is in Germany. directors also lived in Germany
this happened during First World War when English gov issued that no business could be conducted with enemy, Germans
Issue: if war continues, would co has right to sue under English courts?
held: no right in England even though the co was incorporated in England because the SH, directors were Germans.