1) DISTINCT
PERSONALITY
When a company is registered, it comes into being as a separate/distinct legal
entity.
Read the
case of Salomon -vs- Salomon on what a separate legal entity
entails. In summary, the crux of the case was that, as a creditor to the
company, Salomon could recover during liquidation, contrary to the argument by
the unsecured creditors.
In the
case of Lee -vs- Lee Air Farming Ltd, Lee was the principal
shareholder of the company but the wife could recover on behalf of the estate. Why?
When
individuals become members of a company, they agree to let a separate legal
entity carry on business. It is also difficult to contribute capital if the
company and the individual are the same.
Part IV,
S34, and 35 of the Companies Act dictate that Contracts can only be executed by
directors or authorized persons. This is a fundamental Principle fundamental
but it is frequently challenged in the event of one-member companies. In that
scenario, there exist doubts as to whether in fact there is a distinction
between the one party and the company, that notwithstanding, they are different
Every
shareholder despite the number of shares held is in law separate and distinct
from the company. It is thus not automatic that a shareholder can bind the company
in a contract or other obligations, obligations arise if the contract is executed by a director or any other authorized person.
Even
though directors have powers, they can only act within their powers (where
powers of directors are not provided, then the decision of the majority of directors
carries the day). A Director who enters into a contract/obligation in excess of
his/her powers will be personally liable.
2.
Perpetual Succession
A Company
once registered is deemed to have perpetual succession. Perpetual succession
does not mean a company lives forever. It means the life of a company is not
dependent on the timeline of its members. Hence, the company will have perpetual
succession even when it is time-bound
The interest of members limited to
a) Share Capital
b) Amount guaranteed for company ltd by
guarantee
c) Any other agreement as per memorandum
A
company has perpetual succession even where it has an expressly provided term
e.g. 25 yrs.
A
company therefore can only be dissolved/liquidated in the manner provided for in
the statute.
Of
importance is to ensure that the life of the company continues despite whatever
happens to its members.
3. Limited Liability.
A
company’s liability may be limited:
By
shares- the amount of subscribed and issued shares.
By
Guarantee- the amount stated in the memorandum having been guaranteed by the members.
4. Capacity to enter into a contract
A Company
has the capacity to enter into contracts and be bound by obligations thereto.
An outsider is not necessarily required to inquire into the internal affairs of
the company.
A Person
dealing company in good faith has no duty to enquire into the powers of a
director. However, this only applies if a person can prove it is done in good
faith. In compliance with any applicable laws such as procurement and tax laws.
Good faith also means that one must act within reason.
In some
instances (S.35) A director can be personally liable for obligations accrued
while acting ultra vires.
Pre-Incorporation
Contracts S44
At
contract law, pre-incorporation contracts (entered into on behalf of or for
benefit of the company by promoters before a company is registered) did not bind
companies.
Under
Cap 486, the repealed Companies Act, the law treated pre-incorporation on
contract as non-existent. Directors couldn’t ratify such contracts. The only
option available was to enter into new contracts with similar terms.
However,
under the 2015 Act (S.44) members can ratify and continue with the pre-incorporation contract obligations. These contracts are now recognized and can
be ratified and continued with. However, there is no obligation to do this. The
ratification is not automatic but must be done formally.
Subsequent
to the ratification, if there was a breach before the company came into being, the promoters will be liable.
For more, Please visit:
Niccolaw Blog 2
Please subscribe.
No comments:
Post a Comment