In order to form a company UK the first step is to get the company registered. After registration of a company, it becomes a separate legal personality. Entitling a company as a separate legal person means to make its right and responsibilities independent from the legal persons of the company. These legal persons may include shareholders and directors. However, there are certain other properties associated with separate legal personality of a company setup UK. Amongst them, one is the right of a company for owning the property and another is the right of a company to sign contracts. This article discusses case studies regarding these properties.
Ownership of Property of a Company
The ownership of the belongings of a company rests with the company. The members do not own company’s property. Moreover, the members as well as the creditors do not enjoy any insurable interest in the belongings of the company. However, the secured creditors may be given such a benefit. For further illustration, the case study of Macaura is presented below.
Macaura v Northern Assurance Corporation
The ownership of the Killymoon estate belonged to Macaura in County Tyrone. Macaura auctioned the total timber belonging to a corporate body to a corporation named, Irish Canadian Sawmills Ltd. In return he was given forty-two thousand shares where each share cost £1. These shares were held by him and his representatives. Macaura was also the creditor of the company for a sum of £19000. However, he was not given any security. The timber was insured in the name of Macaura against the fire. After the passage of two weeks, unfortunately, the timber was set on fire and nearly all the timber got burnt. It was claimed by Macaura to grant him any insurable interest on the destroyed timber. However, his claim was overruled by the court.
It was held by Lord Sumner that:
Lord Buckmaster and Lord Wrenbury gave similar verdicts and Lord Atkinson and Lord Phillimore also had concurring views.
Trustee and Beneficiary of the Property
There is no such allowance given by any of the law of company to make a company the trustee of the assets belonging to it and terming the members and shareholders as the beneficiaries of it. As in the case of JJ Harrison.
Division of Company’s Property with regards to Matrimonial Relations
In the case of Petrodel, the parties were being divorced and hence were taking a legal action over the distribution of a 50 million pounds worthy estate. However, the shares were held by representative companies. It was held by most of the Court of Appeal that in regards to Section 24(1) (a) of the Matrimonial Causes Act 1973, that no verdict for the property belonging to the company could be given in support of the wife. Although all the shares were held by the husband who also controlled all the companies completely, the veil of incorporation could not be pierced as long as there were no legal reasons to do so. Neither the ownership of the shares nor the control over the corporate bodies were enough to justify the piercing of the veil of incorporation.
Contractual Authorities of a Company
Being a separate legal person, another property that is attributed to a company is that it has the independence of signing contracts with either any of its members or the third parties. Companies Act 1985 also states about the contracts for business formation UK or in Wales.
Regulations for Contracting in England and Wales
This section is especially dedicated for England company register. In the 36th Section of Companies Act 1985, it is mentioned that, any contract may be signed following the laws of England or the laws of Wales by either of the following:
In addition to this rule, all the formalities related to contracting may be found applicable as long as there is no contradicting intention apparent, to the agreement made by the company or its agent.
Contracts signed prior the Incorporation of the Company
The contracts that are signed before the official formation of company are effective as well. Regarding such contracts, it is stated in Section 36C of Companies Act 1985 that:
Company Signing Contracts with Members
A company is allowed to make agreements with any one of its members. The contract will be effective and a valid one. Moreover, it is absolutely permissible for any member to be the sole controller of the company as its main shareholding member and only director as well as be an employee of that company. For further elaboration consider the case of Lee v Lee Air Farming.
Lee v Lee Air Farming
Lee was the late husband of the appellant. He was the founder of the respondent company, which was formed for the purpose of running his business. The business was related to spraying the fertilisers on farms via air. The company had 3000 shares in total, out of which 2999 shares were held by him. Lee was given the sole directorship of the company under the constitution of the company. Additionally, he was also given salary as a chief pilot, again, under the constitution of the company. He died in an air crash while travelling for the company. If Lee was considered as a worker, the company was bound to make a compensation to the widow under the Workers’ Compensation Act 1922 of New Zealand. Worker is defined as someone who works with the employer under any agreement or service in return of either wages, pay or any other form. The company was liable to compensate the workers under that statutory laws. New Zealand’s Court of Appeal had held that Lee could not be termed as a worker when he was also the employer at the same time. However, Mrs. Lee claimed against this verdict and was successful.
It was held by Lord Morris of Borth-Y-Gest that:
The case of Lee was quite clear cut in its understanding and fair enough in its final judgement, the same treatment cannot be given to every scenario. For instance, in the case of laws regarding the redundant remittances, the court may order that any such person may not be treated as an employee and given any compensation in return of any unjust discharge. As in Buchan. In Secretary of State for Business, the Lee case was affirmed by the court but pointed out certain difficulties that may be faced while determining that whether the contract was a façade or not in similar scenarios. The concept of legal personality isolated from the legal persons is more strictly observed in cases related to England company register. Whereas different other countries have embraced the concept of piercing the corporate veil. However, in New Zealand’s case of Lee, separate legal personality prevailed.