Is the Purpose of Corporate Law to Restrict or Promote Corporate Activity?
The corporation is an undeniably pervasive part of modern society that is identified by its corporate activity. Effective corporate activity entails a balance of ‘internal’ (e.g. policies and procedures) and ‘external’ (e.g. laws and social welfare) factors. This essay is based on the belief that the ultimate aim of a corporation is to engage in corporative activity that will have a positive impact on internal corporate and economic performance overall. In lieu of this, this essay argues that the focus of corporate law is also internal, as legislation primarily promotes corporate activity by placing the internal growth of the corporation over stakeholder interest.
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However, as the concept of limited liability gained support less restrictions and regulations were imposed on corporations by the State. In 1862, the existing law was consolidated into the more comprehensive Companies Act, which was mirrored in NSW in 1874 and Victoria in 1864. In 2001 the States referred their constitutional powers to the Commonwealth and the Corporations Act 2001 (Cth) (‘Corporations Act’) was passed.
The Corporations Act provides a more informal registration process and permits corporations to implement their own constitution or use the replaceable rules found in the Act to regulate its internal management. The corporation has the choice to include ‘object clauses’ that restrict corporate activity, however, these primarily used as guides to indicate the nature of the corporation. These statutory reforms throughout history support the premise that corporate law moved from a public, regulatory conception of the corporation towards a private, internal perspective. This can additionally be supported by the developments in case law. For example, the decision in Salomon v A Salomon & Co Ltd, firmly established the complete separation of a corporation, as a separate artificial entity that has the attributes of a natural person, from its members. Therefore, a corporation can lawfully sue and be
This essay will explain the concepts of separate personality and limited liability and their significance in company law. The principle of separate personality is defined in the Companies Act 2006(CA) ; “subscribers to the memorandum, together with such other persons as may from time to time become members of the company are a body corporate by the name contained in memorandum.” This essentially means that a company is a separate legal personality to its members and therefore can itself be sued and enter into contracts. This theory was birthed into company law through the case of Salomon v Salomon and Co LTD 1872. This case involved a company entering liquidation and the unsecured creditors not being able to claim assets to compensate them. The issue in this case was whether Mr Salomon owed the money or the company did. In the end, the House of Lords held that the company was not an agent of Mr Salomon and so the debts were that of the company thus creating the “corporate Veil” .
The thesis deals with the above concepts and discusses how the Companies Act 71 of 2008 (the Act) modified the law, particularly, by extending the legal capacity of a company and extinguishing or modifying the above rules which had previously restricted a company's ability
Woodward, S., Bird, H. & Sievers, S. (2005). Corporations Law in Principle 7th ed. Pyrmont, NSW: Lawbook Co.
“Corporations are said to be “creatures of statute;” they exist because state laws allow human beings to organize themselves into entities that separate ownership and management functions as the outline above delineates. The business rule is there a presumption that making a business decision, the offices act in good faith with the belief that their actions is what is best for the company (Halbert/Ingulli, 2012 pg. 31).”
▪ Discuss the facts of the case study. What facts are in dispute? What facts are agreed?
Based on the case scenario, Doris, Betty, and Charlie formed a company called Bechdo Pty Ltd. The three members are the directors and Betty who is major shareholder holds 40% followed by Charlie and Doris who hold 20% each while the 20% is held by the rest. Based on the company constitution, a managing director has capacity to enter into a contract o behalf of the company up to a maximum of $100,000. Moreover, he/she can enter into contracts to the value of $900,000 upon getting consent for the board of directors. In this case, Bechdo Pty Ltd operates without a managing director since none was elected. The major issue is that Betty being the majority shareholder went ahead and entered into contract with BB Ltd, Jillo Pty Ltd, and
In my review of A Primer on Corporate Governance by Cornelis A. de Kluyver I intend to examine, evaluate, and break down his key points. The book provides a general view on how corporations govern themselves, and the internal and external forces that effect and constrain them. The biggest external force is of course the US Government and the variety of laws and regulations imposed upon corporations. Internally, they are managed by the CEO and board of directors along with a set group of committees and corporate guidelines.
This was a very interesting article, in my opinion it brings to mind the derived phrase, which came first the chicken or the egg. Meaning, is corporate governance an attempt to control the results of unethical practices of corporations or is it meant to deter them. In reading this article, it is clear that certain corporations practiced unethical business behaviors for self-interest, but the questions this author have are: 1. Should corporate governance be regulated by the legislature as well as the organization and to what degree, 2. Is corporate governance, there to protect the shareholder or the stakeholder, 3. How effective is corporate governance on a global level. The need for a governance system is based on the assumption that the separation between the owners of a company and its management provides self-interest executives the opportunity to take actions that benefit themselves, with the cost of these actions borne by the owners (Larcker & Tayan, 2008).
During this 21st century, we find that almost every nation has companies set up and these institutions play a major role in the nation’s economy. We can find that new companies are being incorporated almost in a daily basis under the Companies Commission of Malaysia, in accordance with Companies Act 1965(The Act). However, we realised that the concept of separate legal entity derived its mere foundation from Salamon v. Salamon & Co Ltd which dates back to several centuries.
The concept of a company being a separate legal entity is the most striking illustration in separating the company from its owners. A paramount principle of corporate law is that no shareholder or member of a company is made liable for the obligations incurred by such incorporations A company is different from its members in the eyes of law. In continuations to this the opposite also holds true in the sense that neither can the company be held liable for the acts of its members. It is a fundamental distinction that a company is distinct from its members.
There is no clear framework of the rules that would cover the contingencies of a ruling to pierce the corporate veil Idoport Pty Ltd v National Australia Bank Ltd. The corporate Veil usually protects owners and shareholders from being held liable for corporate duties. Yet again a decision made by the court to lift that veil and would place the liability on shareholders, owners, administrators, executives and officers of the company without ownership interest. The purpose of this essay is to conduct an analysis on the concept of lifting the corporate veil and to review the different views on its fairness and equitability to present a better understanding of the notion, the methods used was throughout researching the numerous scholars views on the subject, case law and statutes examples, and the evidence provided by the empirical study of Ramsay & Noakes. When we discuss the lifting the corporate veil the first case that pops out is the case of Salomon V A. Salomon & Co Ltd, since the decisions of applying the corporate veil were first formed as a consequence of this case. The idea covers all of company law and distinguishes that a company is a separate legal entity from its members and directors. Furthermore, spencer (2012); have indicated that one of the core principles that followed the decision in Salomon v Salomon was the wide acceptance one man company’s. However In order to form a
William O. Douglas said, “Common sense often makes good law.” Well that is what laws essentially are, rules and regulations that make sure common sense is followed. One could even say that laws are enforced ethics. Laws serve several roles and functions in business and society, and this paper will discuss those roles and functions.
A company in itself is an entity. It can operate independently but only through individuals who serve as agents of the company. This individual, the director, has been described by legal scholars as one of the most visible and important persons within the company because he/she serves as the face of the company. With this much responsibility to the company in one person’s hands, the legal powers available to directors have come to question. In the first reported case of its kind, Lord Hardwicke held the directors in question guilty of “breach of trust”, tagging them as trustees to the company. Since then directors powers have been likened to that of a trustee. In Re City Equitable Fire Insurance Co. (1925), Romer J opined that addressing directors as trustees is strictly incorrect, but rather they are agents of companies . Sealy (1967) agrees to this. He notes that the origin of this concept of trust principles possesses no concrete evidence and is therefore irrelevant in modern law. As agents of the company, directors carry are subject to fiduciary duties to the company, also the principal. Fiduciary duties are the highest standard of care. The director is therefore expected to carry out his/her activities in the best interest of the company. Further, the companies Act 2006, an intricate combination of rule derived from judicial precedence and statute developed over time has vested reformed duties, roles and powers in directors to meet the demands of the
This doctrine has been seen as a “two- edged sword,” reason being that at a general level while it was seen as a good decision in that by establishing that corporations are separate legal entities, Salomon 's case endowed the company with the entire requisite attributes with which to become the powerhouse of capitalism. At a particular level, however, it was a bad decision. By extending the benefits of incorporation to small private enterprises, Salomon 's case has promoted fraud and the evasion of legal obligations.
Corporation origin from the Latin word Corpus which means body. It is formed by a group of people and has separate rights and liability from those individual. In any means, corporation exists independently from its owner and this principle is called the doctrine of separate personality. Doctrine of separate personality is the basic and fundamental principle in a Company Law. This principle outline the legal relationship between company and its members. Company’s assets belong to the company not the shareholders as assets are the equity for creditors. Company must use up all its assets to pay off the creditors if it became insolvent. The same applies to the corporation’s debts. For limited liabilities company, the shareholder liability is limited which means that the shareholder is restricted to the number of shares they paid and not personally liable for the corporation’s debts. If the company does not have enough equity to pay off debts, the creditors cannot come after the shareholders. However, limited liability company can be very powerful when in hands who do fraud and on defeating creditors’ claims. Courts then can ignore the doctrine for exception cases and lifting the corporate veil. Lifting the corporate veil is a situation where courts put aside limited liability and hold a corporation’s shareholders or directors personally liable for the corporation’s debts.