The effect of separate legal personality may become prominent after setting up a company UK. When a company is regarded as a separate legal personality, it is meant by the statement that the company is given rights and responsibilities that are solely attributed to the company and not individually to the members. There are some limitations to the concept of separate legal personality allowing some space for the utilisation of piercing the corporate veil. This article discusses the limitations of separate legal personality and later some important factors regarding the separate legal personality.
Limitations of Separate Legal Personality of a Company
Despite the fact that a company is usually treated as a separate legal personality, especially in the United Kingdom where piercing the corporate veil is not supported at large, there are some limits to the separate legal personality. Companies Act 1985 addresses the extent of impact of memorandum and articles on the separate legal personality of a company.
Impact of Constitution and Memorandum on a Company
Section 14 of Companies Act 1985 states that:
Extension of Separate Legal Personality to Humanly Attributes
It is evident from different cases such as Salomon, that theoretically as well as practically, under company law a separate lawful body is created by an corporation. This body has the capability of owning rights and responsibilities as a separate legal person. However, there is difference between treating a company as a separate legal person and as an entity having humanly characteristics. It is logically incorrect to assume that humanly characteristics of a company derive from its separate legal identity. Despite of this difference, the courts have been attributing humanly characteristics to companies. This physical person analogy is pursued by the courts as far as it can be possible to attribute human characteristics, for instance, defraud or repute or intention which would not have been even thought about some time back. Such an extension of the concept of separate legal personality to humanly attributes can be questioned to be desirable.
Blackstone’s Remarks in “Commentaries on the Law of England”, Page 476 of Volume 1
It is stated about the corporations that:
There are some specific advantages as well as limitations that may be applicable on an aggregate corporation and cannot be applied to such as are sole. It may be because of the law and ceasing. The appearance of a corporate should be via attorney. It is because a corporate’s appearance cannot be made personally. As stated by Sir Edward Coke, it only exists in the understanding and intendment of law. It can be subjected to any maintenance or be given defense against personal injuries like action of battery because it is not possible that a corporate body can be hit or can hit anyone. It does not lie within the capacity of a corporate body to commit any treason or criminal act or felony. However, criminal acts can be committed by the members, but they will be considered within the individual capacities of the members. A corporate body cannot be given a traitor’s punishment or even a felon’s penalty. It is due to the fact that corporate bodies are not liable to corporal punishments or to forfeiter or attainder or any blood related corruption. A corporation cannot be given the status of executor or attributed as an administrator, nor is it capable of performing duties in person because no oath can be taken by the corporate body for the working of the office. It cannot be arrested because its presence is ideal. Due to the same reason, it cannot be subjected to outlawry, as a prior right of arresting is assumed by outlawry, which has been outclassed by the absconding group. This cannot be done by a corporate body, for such purposes, compelling a corporate body to appear in any lawsuit via attorney, the proceedings are always by distress on their belongings. As there is no soul of a corporate body, it cannot be subjected to excommunication. For the same reason, as mentioned by Sir Edward Coke, it cannot be called upon by the ecclesiastic courts for any reason, for all the actions taken in the such a court are pro salute anime. The sentences passed by such courts can be implemented only via spiritual condemnation. If it is executed completely, it would just give a depiction of the improper interference of ecclesiastic courts in temporal rights.
However, regarding the imprisonment of the company, it was stated in the 5th clause of 68th Section of Companies Act 1967 that a company related to the business of insurance which violates the subsection (1) or subsection (2) of the same section of the same act, will be held responsible for an offence and made to fulfil the liability and be convicted of indictment to incarceration for a maximum of two years. But, this has been repealed now.
Definition of Corporation Aggregate
When an entity of corporate is attributed to different persons grouped together as in the following cases:
Such a corporate body is entitled as a “corporate aggregate”.
Definition of Corporation Sole
When any office that is under taken by any one person, is personified by the law, for instance, the Crown and the Bishop of Ely, the office is customarily termed as “corporation sole”.
Single Member Companies
An interesting fact is that since 1992 it is possible to register limited company UK having single member at the time of initiating the business. However, this classification of business is anomalous and can neither be termed as corporation aggregate nor as corporation sole traditionally.
Understanding the Remarks of Blackstone
The remarks given by Blackstone (as mentioned above) are influenced by the view point of Sir Edward Coke that were expressed more than 150 years ago. One may have a better understanding about these remarks if a local entity such as the City of Birmingham as well as the University of Cambridge which is an institution are taken into consideration as “corporations” typically. At the time these remarks were written, the modern view of company remained infamous and there was an existence of commercial corporate bodies, for instance, the Hudson’s Bay Company. Such corporate bodies were given a broad range of governmental authorities and advantages for trade.
Doctrine of Separate Legal personality
After a company registration UK is done, a company is given a special status under the law that is the status of being a lawful body isolated from its members. The doctrine of separate legal personality is a core part constituting the formation of the law of company. This doctrine has various kinds of impact that may be illustrated in varying manners. The cases such as Re Darby, Gilford and DHN outline different exceptional situations where the law may be violated as well as distinguish situations where a liability greater than as mentioned in the memorandum may fall upon the members of the company for any wrong that happens to or by the company. Nevertheless, an important point is that despite all these exceptions, a company is a separate legal person under law. This fact cannot be left unappreciated because it plays a crucial role when any arrangements are made between the company and the third parties.
Company’s Agents and their Capacity
The promoters of a company including all those who were involved in setting up a company UK, the directors and the auditors are assigned different duties in a company. However, these duties are for the company and do not have any direct concern with the individuals belonging to a company. For instance, the promoters owe fiducial duties to a company just like the directors and no duty of the promoter is related to the individuals of a company. However, there may be some special scenarios where duties regarding individuals may be assigned to the promoters. As specified by pp 481ff of “Promoters and their dealings with the company” and pp 391ff of “Directors’ duties are owed to the company”. Another type of persons belonging to the company are the auditors, who are given authorities and duties in relation to the company instead of the individuals of a company. These are specified in pp 463ff of “Auditors and their relationship with the company”. In terms of the duties of directors it should be clarified that by whom are these duties owed. In cases where a person is given the directorship of the sole corporate director of any “X” company, a question may be raised that whether the same person is eligible to be termed as a de facto director of that company or not in order to become liable. For instance, the case of Holland and Ranson.
Determination of Procedural Requirements for acting as Company Agents
The constitution of company, also known as its articles of association determine that what procedures will any agent of the company, that may include directors, members and other employees, adopt in order to execute an action on behalf of the company. As mentioned in Section 7(1) of Companies Act 1985, in the case of an unlimited company or a company limited by shares or guarantee, the registration of articles of association of a company may be done along with the memorandum, which will provide regulations and conditions for the company. Certain other laws of statute along with the common law rules have been designed as such to provide security to the third parties when any arrangement is made between the third party and the company. These can be observed in pp 84ff of “Authority of the company’s agents”. An important point to note is that, although such provisions are necessary for the protection of the rights of third parties, they also lead to a problem of contracts of pre-incorporation. This problem defines the condition when the negotiations regarding the contracts are done and finalised whereas the company is still deeply thinking over the contracts but prior it gets registered officially. It may be suitable to entitle the human agents before the formation of the company as those acting on behalf of the company after the registration of the company. However, it is an ambiguity whether their actions taken before the formal constitution of the company will fall under the capacity of their entitlement or not. An answer may be found in pp 131ff of “Pre-incorporation contracts”.
After the company registration UK the actions taken by a company are generally attributed as the actions of the company. However, it does not mean that a company being a separate legal person will be further attached with humanly qualities. Such qualities may include arresting or defrauding intention. As depicted in the article an effort is made to explain the difference between the humanly characteristics and the characteristics of a separate legal personality of company formation UK and the capacity of company’s agents.