Compay Law
Essay Preview: Compay Law
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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 companys property (Limited Liability)
Limited Liability:
Shareholders are not personally liable for companys 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 Salomons 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 companys debts were not Salomons debts as they were two separate and distinct entities.
The court held in Macauras 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 insurees property in the event that the assets become damage, even if there is no insurable interest.
Lee v Lees 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.