Compay Law
Essay by people • March 10, 2012 • Essay • 312 Words (2 Pages) • 1,311 Views
A company is an artificial person or entity recognized by law as having its own rights and liabilities. It is a separate entity from its owners and managers. (shareholders and directors)
Effects of registration:
- A company has the legal capacity of an individual and body corporate
- Can sue and be sued in its own name
- Continue to exist until it is deregistered by ASIC or liquidated (Perpetual Succession)
- Can own property such as land in its own name
- Shareholders do not own company's property (Limited Liability)
Limited Liability:
- Shareholders are not personally liable for company's debts
- Liability is limited to the amount unpaid on issue price of shares
- Transfers the risk from shareholders to the creditors
Reasons for Limited Liability:
- Facilitates business
- Reduces monitoring
- Promotes Market Efficiency
- Diversity
In Salomon's case, the court held that there was a separate legal entity between the company and its shareholders, despite that it was a one-man company with the same person managing and owning all the shares, and that Salomon was the main creditor and owner. It also demonstrated that secured creditors rank above unsecured creditors in the event a company liquidates. Therefore, the company's debts were not Salomon's debts as they were two separate and distinct entities.
The court held in Macaura's case that Macaura had no insurable or legal/equitable interest in the assets of the company as they were separate legal entities. However the rule has been reversed from S17 of the Insurance Contracts Act stating that under a general insurance contract, the insurer is still liable for the insuree's property in the event that the assets become damage, even if there is no insurable interest.
Lee v Lee's Air Farming showed that a person can act in dual capacities of a member and an employee. A one-person company is a separate legal entity from its controller who may also be its sole employee. Therefore, "shareholder", "director" and "employee" are different roles a person may hold at the same time.
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