Separate Legal Personality for an Establish Company in UK having a Single Shareholder with relevant Case Studies


Once the companies house incorporate a company, the company does not remain a mere corporate body. It is given the special status of being a legal person under law. By a legal person it means that the company has its own identity and rights and responsibilities that are not to be taken as the identity, rights or duties of its members. There are some prominent attributes linked with the separate legal identity that may attach to a company after one register a ltd company with companies house. One of them is being discussed in this article.

Attributes of a Separate Legal Personality

There are certain special facets that may be attributed to the companies entitled as separate legal personality. While set up a new company UK, some belongings to the company are allot that may be used by the company in its regular business, these are the assets. A company has the right to own its assets as a separate legal personality. No legal person, that is any of the members, is given the right to declare ownership of any asset of the company. For instance, in the case of Macaura. Another crucial attribute of a legal body isolated from its legal persons is that the company has the right to sign contracts with any of its member. A member is allowed to act as a member as well as an employee and the sole controller and director of a company simultaneously. As in the case of Lee. 

Separate Legal Personality of Companies having Single Shareholders

Just as it is allowed since 1992 to establish company in UK with single members as subscribers to the documents of a company, there is a possibility that a single member holds all the shares of a company or nearly all the shares. It may seem that such a person is having a strong hold over the company and is influencing the actions of the company but it is an attribute of the separate lawful existence of a corporate body that it remains independent from its sole shareholder under the eyes of law. The actions taken by the company or the business deals carried are not accused as being the actions of and business dealings of the individual who holds shares in the company.

For a further elaboration, the case of Gramophone and Typewriter Corporation ltd is presented in the text that follows:

Gramophone and Typewriter Corporation

The company that was appealing in the court was the sole owner of all the shares in a Germany-based company. The appellant company had the residency of England for the reason of tax. An assessment of the appellant was made regarding the taxation on income incurring upon the profits made by the company in Germany and paid to the appellant company in England. Also, the taxation incurring upon a total of fifteen thousand pounds that were retained by the Germany based company, and were given to a funding of depreciation was assessed. Any profit that had not been paid to the appellant company were only liable to any tax if as held by the Commissioners of Inland Revenue, it had been gained from any business run by the appellant company residing in England. However, the Court of Appeal had given an opposing verdict overruling the verdict of the Commissioners of Inland Revenue.

It was held by Buckley LJ that:

  • An assessment that is required to be made is that whether the English company was running the business in Germany. If it is true, no argument would be given by the appellant company against the Attorney General.
  • However, if the truth is that the business in Germany is run by the German company itself and not by the English company, the Attorney General cannot present any argument other than that the profit gained by or any distribution made upon the shares held by the English company in the German company would be subjected to an assessment.
  • For the Attorney General to raise a successful claim, the company in Germany must be proved as a sham or façade to the company residing in England. It should be showed that the business in Germany is actually being conducted by the company in England.
  • Another way to make the claim victorious is that an agency relationship is shown between the English and the German company.
  • However, no facts exist giving any evidence of the Germany company being a sham or façade. The formation of the company in Germany took place in January of 1900. It was formed after three companies united with two persons. All the three companies owned a good amount of assets which were then united. The registration was done under the law of Germany.
  • It cannot be objected on any basis that the company based in Germany is actually a corporation of Germany, conducting its business in the same country and in situations where the company as well as the officers of the company are subjected to the laws of Germany.
  • Hence, the only confusion that prevails and has to clarified is that if the company based in Germany is acting on behalf of the English company, that is, if it is playing the role of an agent to the company residing in England and the business is originally being conducted as per the will of the English company.
  • The Attorney General quotes the 17th paragraph of the case under consideration which mentions that all the shares of the German company are now owned by the English company.
  • In my point of view, even if the English company holds all the shares of the German company, no agency relationship can be created on this basis. It is apparently a time’s wastage if the distinguishing factors between the corporate body and the aggregate of the total corporators are pondered upon.
  • However, certain factors may be outlined by me to show whether there is an existence of the agency relationship due to the complete ownership of all the shares with one member.
  • Suppose in any particular year when the accounts are being assessed, the English firm holds none of the shares of the German firm in the first half of the year and holds all the shares in the second half of the year, or the company one day has the ownership of ten shares only and the next day has the ownership of all the shares and the coming day it holds only ten shares again than it cannot be assumed or suggested that the agency relation existed when the member company held all the shares and died when the shares were given away.
  • Additionally, it is being emphasised that the English company, due to owning all the shares, has such a control over the German company that the German company takes action according to the directions given by the former company. Again I assume it has been misapprehended. It was made clear in the case of Automatic Self Cleansing by the court that even a majority required by the statute cannot force the directors to work according to the majority’s will by the passage of resolution if the directors have been authorised to take charge of the matters of the company by the articles.
  • The directors do not play the role of servants to the company’s shareholders by following their orders. Nor is there any existence of an agency relationship between the two, with director being the agent to its principal, the shareholders.
  • The directors are entities that are authorised by the regulatory documents of a company to manage or control the affairs of the company. This authority can only be taken away if there is a vast majority under the statute to amend the articles.
  • In my views, there is no restriction on the directors to act according to the directions given by all of the corporators who are acting as individual persons. Although, the corporators may be given the authority of removal of any director that does not obey or follow the directions given by the corporators, by the passage of special resolutions, even this fact cannot be used to clarify the ambiguity that the corporators are actually conducting the business of the corporation or is this just a myth.

Fletcher Moulton LJ gave a similar verdict. Similarly, the verdict given by Cozens-Hardy MR was also concurring.

The text that follows gives an elaboration of another case related to the topic being discussed. It is the case of Lonrho Ltd.

Lonrho Ltd

Lonrho pursued the permission for disclosing some documents which according to the statement of Lonrho were under the authority of two multinational companies of oil. The companies were Shell and BP. The domestic subsidiaries of Shell and BP were holding these documents in Zimbabwe which was known as Rhodesia at that time and South Africa. The companies had full hold and ownership of the subsidiaries. The request made by Lonrho was rejected.

It was held by Shaw LJ:

  • The request raises the question about the implementation and the extent of authority of RSC, Ord 24. The question is that when is a document termed to be in power of the party under litigation if its disclosure is requested.
  • The question may appear as a basic one, however, it is in my views, a very complex problem about the constitution of the authority. I may make a confession of indecisiveness as either side presented the argument.
  • My final conclusion is that a party may be termed as having a possession of the document which is to be disclosed, only if at the time of the date of disclosure, the party, based on the facts of the case is in a virtual possession, for instance, in the case of the relation between single member company and its documents. Also it may be possible if, the party enjoys a current right lawfully to ask for the hold of the document from someone who has it at that time.
  • However, no such relation can be found in this case that may lead to an immediate transfer of possession. The relationship between the two oil companies as well as between the oil companies and their subsidiaries, which also includes the subsidiaries that are completely owned by the holding companies, may result in the transfer of possession of the documents held by any subsidiary ultimately, but this cannot be done on an immediate basis.
  • An immediate transfer of the possession can be made possible if the subsidiary passes resolution to amend the articles and removes its director that are unwilling to cooperate and replaces them with competent directors. However, this will lead to the piercing of the veil of incorporation as well as the affronting the persona of the corporate body itself.  Even after the replacement of directors, it may be felt by the directors that there is a conflict in the duties so they are not authorised to have any compliance with the requirement.
  • Undoubtedly, there have been cases where the companies were so submissive to any other person or their parent company that it was guaranteed that the companies would work in compliance with the will of their principal. As in the case of B v B. However, every case has its own facts and context that must be taken into consideration.

Concurring verdicts were given by Lord Denning MR and Brandon LJ.

Conclusion

The members are given a limited liability once you register a ltd company with companies house. This limited liability rule cannot be altered unless in exceptional scenarios. Such exceptional scenarios arose every time someone set up a new company UK. However, these cases also made the attributes of separate legal personality quite clear.

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