Corporate Law: Salomon, Macaura, and Tesco - Entity & Shareholder Liability, Lecture notes of Corporate Law

Download Corporate Law: Salomon, Macaura, and Tesco - Entity & Shareholder Liability and more Lecture notes Corporate Law in PDF only on Docsity! MLL221 – Corporate Law Prescribed Cases for Each Topic Chapter 2 – Registration and Its Effects Salomon v Salomon [1897] AC 22 Facts: - Mr S was the sole trader of a shoe and leather business - Co Act 1862 (UK) required 7 shareholders - Salomon & Co Ltd incorporated - Mr S 99% shareholder and managing director - Mr S sold business to Co for shares and secured debt - Business failed, assets of Co insufficient to repay secured (Mr S) and unsecured creditors Argument: Liquidator argued that because the business operated by the Company was the same as that operated by Mr S, and because Mr S had effective control of the Company, the court should hold Mr S liable for the loss suffered by the Company House of Lords: - A company is a separate legal entity even though a single person manages and controls it - A company can contract with its controlling participants Lord Macnaghten (51): “The company is at law a different person altogether from the subscribers to the memorandum [shareholders]; and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided in the Act.” Directors Mr Salomon (MD) & 2 sons A Salomon & Co Ltd Mr Salomon (20,001) Salomon Family (6)