Consequences of Incorporation

List the 5 consequences of incorporation

1. Corporate property

2. Transfer of property

3. Insurable interest

4. Compensation

5. Sued and being sued

What is the principle regarding corporate property after incorporation?

As a separate legal person, the company owns its own assets in its own right, not as an agent/trustee for the members.

What was said in Saloman regarding company assets

“the business belongs to the company” and the shareholder does not by mere virtue of his shareholding, have any proprietary interest in the company’s assets.

How did Redfern Ltd v O’Mahony illustrate the consequence of corporate property?

The incorporators overlooked the distinction re company assets and thus the court held that the agreement made by a partnership to transfer shares in another company was fundamentally flawed as the partnership had no title to the shares owned by the company.

Why is the distinction between a company’s property and a member’s property important for third parties?

Third parties should be wary of the distinction to avoid liability, as demonstrated in A L Underwood Ltd v Bank of Liverpool. In this case, the bank was held liable for facilitating the misappropriation of funds when the controlling shareholder endorsed company cheques to his private account, failing to observe the separate legal entity.

Explain the transfer of property and name the case which affirmed it

The transfer of property by the controlling shareholders to the company is a transfer to a distinct body as affirmed in Farrar v Farrars Ltd

Explain how insurable interest works

The distinction between company property and members’ property may work to deprive the controllers of a right/remedy which they might have had had they not transferred their property to a company.

What was held in Macaura v Northern Assurance Co Ltd

The Court held that as Macaura sold his timber to a company, when it was destroyed he could not recover on his insurance as he had no insurable interest in the timber.

What was held in Wilson v Jones

It was held that a shareholder can cover himself against loss by the company by insuring his shares against a drop in value.

Explain compensation as a consequence

Shareholders have no right to compensation in respect of loss suffered by the company.

What was held re compensation in O’Neill v Ryan

The plaintiff alleged that breaches of competition law caused a diminution in the value of his shares. The Court rejected his claim on the basis that such actions by the defendants could not cause personal loss to the shareholder.

What was held in Prudential Assurance v Newman Industries

 “such a loss is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss ... The plaintiff’s shares are merely a right of participation in the company…”

Explain the consequence of sued/being sued - contracts (what case affirmed it)

Shareholders are not party to contracts made by the company and cannot sue to enforce them by virtue of the fact that he is a shareholder. A shareholder also cannot be liable on such contracts. This was affirmed in Dunlop Pneumatic Tyre v Selfridge.

Can shareholders use a corporation to avoid personal contracts?

Shareholders cannot hide behind the corporation to avoid a personal contract.

How did Waters v Kelly [2009] illustrate the principle regarding personal contracts and the corporate veil?

The Court rejected the defendant's claim that a loan was made to his company, not him personally, stating he sought to rely on "the existence of the corporate veil to absolve himself ”

Regarding torts, who can sue whom between a corporation and its shareholders?

A corporation can sue for torts committed against it; shareholders cannot. Third parties' duty of care often extends to the company, not its shareholders, especially when they only suffer economic loss.

How was the principle of duty of care in torts illustrated in McSweeney v Burke [1980]?

In McSweeney v Burke [1980], the Court rejected shareholders' claims against a consultant who gave financial advice to the company because the consultant owed a duty to the company, not the individual shareholders.

How can a corporation be sued for torts?

A corporation may be sued for torts committed by it, either vicariously (through employees' actions) or personally (for acts done or authorised by the board/shareholders).

What principle was established in Lennard’s Carrying Co v Asiatic Petroleum Co [1915] regarding corporate tort liability?

the Court stated that fault must be attributed to "somebody for whom the company is liable because the action is the very action of the company itself."

What shortcoming or challenge was illustrated in The Lady Gwendolen [1965] regarding corporate tort liability?

the company was held vicariously liable for a ship crash due to an untrained captain. The captain's failure was equated with the company's failure because he was high enough in the company to represent its actions.

Can a company bring criminal prosecutions?

A company cannot bring criminal prosecutions, as confirmed in Cumnn Luthchleas Gael Teo v District Justice Windle.

Can a company be prosecuted for criminal acts? If so, explain the basis for liability.

A company can be prosecuted for criminal acts, either vicariously or personally. Many regulatory offenses are strict liability. Personal liability arises when the criminal act and state of mind of a controlling officer can be attributed to the corporation.

Provide an example of a company being found guilty of criminal sanctions under strict liability.

In R v Gateway Foodmarkets [1997], the company was found guilty of criminal sanctions under the Health and Safety Act after an employee died in an unguarded lift shaft.

According to HL Bolton (Engineering) Ltd v TJ Graham & Sons Ltd [1957], how is a corporation's state of mind determined for criminal liability?

the Court explained that "directors and managers represent the directing mind and will of the company, and control what they do. The state of mind of these managers is the state of mind of the company and is treated by the law as such."

How do Irish courts generally approach according Constitutional rights to corporations?

The Irish courts adopt a 'measured approach,' generally considering corporations unable to rely on constitutional protection for rights intended for human persons - Quinn’s Supermarket Ltd v Attorney General.

What was the ruling in Iarnrod Eireann v Ireland [1996] regarding corporate property rights?

the Court held that property rights (Article 40.3.2) could be enjoyed by corporations, basing them on citizenship rather than deriving from Article 43 (human being).

Can companies invoke the personal unenumerated right of access to the courts?

the Court held that a company had sufficient locus standi to start proceedings, stating that the right of access to the courts is a fundamental right afforded to citizens.

What are the capabilities of a corporation as a legal person, and how do courts interpret statutory application to companies?

As a legal person, a corporation can enjoy rights and be subject to duties and obligations. If a statute doesn't specify whether it applies to companies, courts consider the general background and purpose of the legislation.