8. Separate legal personality

Salomon v Salomon

Mr Salomon sold his boot business to a company he formed, A Salomon and Co Ltd. He and six members of his family held the shares, with Salomon holding almost all of them. Part of the price was paid in debentures secured on the company's assets. The company failed. The liquidator argued that the company was just Salomon under another name, so he should pay its debts. The House of Lords disagreed. The company was properly formed and was a different person from Salomon. As a secured creditor he was entitled to be paid ahead of the unsecured creditors.

What follows from separate personality

The company owns its property: in Macaura v Northern Assurance, Macaura sold his timber to a company he owned, then insured the timber in his own name. When it burned, he could not claim. The timber belonged to the company, and as a shareholder he had no insurable interest in it.

A person can contract with his own company: in Lee v Lee's Air Farming, Lee was the controlling shareholder and governing director of a company, and also its employed pilot. He was killed while flying for it. The Privy Council held that he was the company's employee, so his widow could claim compensation.

The company sues and is sued in its own name: a wrong done to the company is the company's to remedy, not the members': section 255 and Foss v Harbottle.

Limited liability: in a limited company, creditors can look only to the company's assets, not to the members' private property.

Perpetual succession: the company is not affected by the death or change of its members.

Representation in court: because the company is a separate person, the Irish Supreme Court held in Battle v Irish Art Promotion Centre that a controlling shareholder and director could not appear in person for the company. This is persuasive only. Check the rules of court in Sierra Leone for who may appear for a company.

Companies, crime and tort

A company acts through people. It can be vicariously liable for torts its employees commit in the course of their employment, and it can be liable for some crimes through the acts of the people who are its directing mind. This is covered in the chapter on company liability.