Notes on Company Law Principles

Key Principles of Company Law

1. Separate Legal Personality
   • A company is recognized as a separate entity from its members.
   • Members (e.g., Mark, James, Jane) and the company are distinct legal personalities.
   • Members are not liable for the company’s obligations.

The Principle of Separate Legal Personality

• Definition:

  • The company exists as a separate legal person, distinct from its members.

• Implications:

  • The company has its own rights and obligations.
  • Members cannot claim benefits or be held liable for the company's debts.

• Case Study: Salomon v. Salomon & Company Limited

  • Mr. Salomon was a sole trader who formed a company, Salomon & Co.
  • He sold his leather business to the company and became both a member and a creditor.
  • He secured his loan with a charge on the company's assets.
  • When the company was wound up, Salomon was the only secured creditor.
  • The court ruled that even though Salomon was the majority shareholder, he and the company were different legal entities.
  • Other creditors could not claim against Salomon personally for the company's debts.

Conclusion of the First Principle

• A member's control or ownership of shares does not equate to ownership of the company.
• The principle establishes that a company is a separate legal entity, distinct from its members.