evahml
Shue Yan University
Company Law (LAW 331)
Topic 1: Corporate Personality
Reading: Law of Companies in Hong Kong – 3.001-3.072
Overview
Company is a legal person different from its members
Doctrine of separate legal entity of a company constitutes one of the major conceptual foundations of company law.
Under this doctrine, the company is a different person altogether from the members of the company. The company itself is a legal person. As a separate legal entity separate from its members, the company has its own rights and liabilities which are not regarded as the rights or liabilities of its members (nor of the company’s directors).
Doctrine of Separately Legal Entity
A company - a legal entity distinct from its members >> artificial person or body corporate
1. Salomon v Salomon and Co Ltd (1897) UK
Facts:
Mr. Salomon – boot manufacturer – business failure and sold it to a company set up by himself for $39,000
Shareholders of the Company – Mr. Salomon, Mrs. Salomon and their 5 children
Consideration of the transaction:
> $9,000 (cash); and
> $20,000 shares were allotted to the subscribers as fully paid at $1 each; and
> $10,000 was treated as a loan by Salomon to the company. Salomon was given debentures secured by a charge on the company’s assets
*** what’s the meaning of a loan?
*** what’s meaning of debentures? any effect?
***what if the creditor borrow some money to the borrower without obtaining any assets as security for the loan?
The company later went into liquidation. Assets were sufficient to satisfy the secured creditor, but the unsecured creditors, with debts amounting to $7,000, received nothing.
*** secured creditor vs. unsecured creditor
Held:
- Salomon was entitled to be paid before the unsecured creditors.
- the company was a duly registered and was not an agent of or trustee for Salomon but a separate legal entity
- Salomon could therefore contract with and be a secured creditor of the Company
Company Law (LAW 331)
Topic 1: Corporate Personality
Reading: Law of Companies in Hong Kong – 3.001-3.072
Overview
Company is a legal person different from its members
Doctrine of separate legal entity of a company constitutes one of the major conceptual foundations of company law.
Under this doctrine, the company is a different person altogether from the members of the company. The company itself is a legal person. As a separate legal entity separate from its members, the company has its own rights and liabilities which are not regarded as the rights or liabilities of its members (nor of the company’s directors).
Doctrine of Separately Legal Entity
A company - a legal entity distinct from its members >> artificial person or body corporate
1. Salomon v Salomon and Co Ltd (1897) UK
Facts:
Mr. Salomon – boot manufacturer – business failure and sold it to a company set up by himself for $39,000
Shareholders of the Company – Mr. Salomon, Mrs. Salomon and their 5 children
Consideration of the transaction:
> $9,000 (cash); and
> $20,000 shares were allotted to the subscribers as fully paid at $1 each; and
> $10,000 was treated as a loan by Salomon to the company. Salomon was given debentures secured by a charge on the company’s assets
*** what’s the meaning of a loan?
*** what’s meaning of debentures? any effect?
***what if the creditor borrow some money to the borrower without obtaining any assets as security for the loan?
The company later went into liquidation. Assets were sufficient to satisfy the secured creditor, but the unsecured creditors, with debts amounting to $7,000, received nothing.
*** secured creditor vs. unsecured creditor
Held:
- Salomon was entitled to be paid before the unsecured creditors.
- the company was a duly registered and was not an agent of or trustee for Salomon but a separate legal entity
- Salomon could therefore contract with and be a secured creditor of the Company