BUSINESS ORGANISATION

With reference to decided cases and relevant statutory provisions discuss the concept of separate legal
personality.
(25 marks)

INTRODUCTION
The law applicable is Companies Act 1965. According to section 4(1) com Companies Act 1965,
section 4(1), a company means a company incorporated under he Act or its predecessors Act

THE EFFECT OF INCORPORATION

According to section section16 (5),the effect of incorporation are:
i. The comp is a body corporate with the powers of an incorporated company (separate legal
personality)
ii. It may sue & be sued in its own name
iii. It has perpetual succession
iv. It may own property
v. The liability of members may be limited

COMPANY IS A BODY CORPORATE

A body corporate is a legal person that is created and given recognition by the law. It is an artificial
person that is recognised by law as having powers and liabilities like an individual.

CASE: SALOMON V SALOMON

S was a sole trader in shoe manufacturing business. He changed his business to company and sold the
business to the company for f39 000. The business did not do well and after some time become insolvent.
The assets of the company were not enough to pay the creditors so the creditors tried to claim from S
stating that S and the company were in fact one and the same.
It was held that Salomon was not liable for the companys debts as the company and its members are
separate entity.

COMPANY CAN SUED AND BE SUED

As the company is a separate legal entity, it can sue and be sued in its own name.The members of the
company cannot take legal action on behalf of the company.

CASE: FOSS V HARBOTTLE

Two shareholders of a company brought action against directors of the company for misapplication and
improper use of the companys property.it was held that members could not take action on behalf of the
company.

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COMPANY HAS PERPETUAL SUCCESSION
After a company is incorporated, it continues to exists until it is dissolved according to the law.Even if the
membership changes, or all the original members die, the company does not come to an end.

CASE:RE NOEL TEDMAN HOLDINGS LTD

A company had a husband and wife as it only shareholders and directors. Both dies in an accident leaving
behind an infant child. After their death, the company still existed.The issue was since the shareholders
and the directors died, the shares could not be transferred according to the will of the deceased to the
infant.the court allowed allowed the personal representatives of the deceased to appoint directors of the
company so that these directors can transfer the shares to the child.

COMPANY HAS POWER TO OWN PROPERTY

Although section 16(5) mention that a company has the power to hold land but this also mean that a
company can own other type of property too. The property of a company is its own, not that of its
members.Once a person has sold or given his property to the company, he no longer has no right over it.

CASE: MACAURA V NORTHERN ASSURANCE CO LTD

Macaura owned an estate and he sold all the timbers on the estate to a company called Irish Canadian
Sawmills Ltd, where he ownes all the shares. Macaura had insured the timber that he sold to the company
in its own name. After that, a fire broke out destroying the timber.When Macaura claimed, the insurance
company refused to pay.It was held that the sole owner of the company had no insurable interest in its
assets since they belonged to the company.

COMPANY HAS LIMITED LIABILITY

Once a company is incorporated it is liable for its own debts and obligations.The members are not
responsible for it.If the company should suffer losses, the shareholder is not liable to contribute any more
to the company if he has fully paid for his shares.His only loss would be the amount he has paid for the
shares.Creditors for the company cannot take action against the members because the members are
separated from the company.

CASE: RE APPLICATION YEE YUT EE

Yee was the secretary of a company that was wholly owned subsidiary of an American corporation. The
company had retrenched their staff and a dispute arose a to the retrenchment benefits. The matter was
brought to the Industrial arbitration Court where an award was made in the companys absence. As the
company did not comply with the award, the Arbitration Court ordered that Yee be personally liable as he
had been appointed director by then.It was held that directors are not liable for the companys debts.

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