There are two types of corporation, corporations sole and corporations
aggregate. Generally, the term corporation is used to refer
to corporation aggregate, and this practice will be followed
here except where the context clearly requires otherwise.
Corporations sole
A corporation sole is a legal person representing an official
position occupied by a series of successive human beings.
As already mentioned, the Queen in her public capacity is
a corporation sole, and other examples are the bishops and
parish priests of the Church of England, and the Public Trustee.
These corporations are in law entities distinct from the human
beings who hold the positions at any given time, and who merely
act on behalf of the corporation. Thus, the Queen in her personal
capacity owns Balmoral Castle, and could sell it in the same
way as any other individual can dispose of his property. However,
Windsor Castle is owned by the Crown, and the Queen occupies
a position akin to a trustee in relation to that particular
piece of property, although theoretically, in her public capacity,
she could sell it.
The death of the holder of an office which is a corporation
sole in no way affects the corporation itself; the corporation
cannot die, and its property remains vested in it. Corporations
sole can be created only by statute.
Corporation aggregate
A corporation aggregate is a legal person consisting of a
number of people, but with an existence quite separate from
them. Thus, for example, the Chartered Insurance Institute
is a corporation which at any particular moment consists of
its fifty thousand-odd members. But although the membership
is always changing by reason of new admissions, resignations,
and deaths, the corporation itself does not change except
to the extent that its Charter and Bye-Laws may be altered
from time to time and, with obvious exceptions, it has the
same legal rights and liabilities as a natural person.
Formation of corporations. One of the rights of the Crown
as corporation sole is the creation of corporations aggregate
by the grant of a Royal Charter. The majority of such corporations
include the word ‘chartered’ in their titles –
the Chartered Insurance Institute, the Chartered Institute
of Loss Adjusters, the Institute of Chartered Accountants
– but some, such as the British Broadcasting Corporation,
do not.
Most corporation, however, come into existence by reason of
statute, there are two main methods:
Firstly, a particular corporation may be created by a particular
statute, and the corporation thus created may be a corporation
aggregate or a corporation sole. Thus, British Rail, British
Gas and the National Coal Board are all corporations aggregate,
each created by its own Act of Parliament; and the Minister
of Education and the three European Communities are by statute
created corporations sole.
Secondly, the most common form of corporation is the registered
company. These are corporations formed under the various Companies
Acts and they are termed registered companies, in contrast
to those created by individual Act of Parliament, which are
usually styled statutory companies.
Effects of incorporation. The following are the main effects
of incorporation:
Firstly, as already mentioned, the corporation has a separate
existence distinct from that of its members or shareholders.
In Salomon v. Salomon and Co. (1892) Salomon and some of his
acquaintances formed a company which bought a business which
previously belonged to Salomon himself. Salomon had £10,000
in debentures (a form of loan which has certain preferential
rights if the company becomes unable to meet its liabilities)
secured by a charge on the company’s assets. The company
fell upon hard times and had to be wound up, with assets of
£6,000 only and with several creditors, including of
course Salomon as debenture holder. In legal proceedings it
was argued that Salomon and Co. had never had an existence
separate from Salomon, and that the company’s debts
were his debts. The House of Lords rejected this argument;
Salomon and Co. were a legal entity distinct from Salomon
himself, and as a debenture holder Salomon as an individual
had a prior claim on the company’s assets. However,
the courts will not allow incorporation to be used as ‘a
device, a strategem……a mere cloak or sham’
.In Gilford Motor Co. v. Horne (1933), a former employee was
bound by a restraint of trade, and sought to evade this by
establishing a company. He claimed that, although he personally
was bound by the restraint, his company, being a separate
legal entity, was not. The court rejected this argument, and
an injunction was granted against both him and his company.
Secondly, corporations in general have the same rights and
duties as private individuals of full age and capacity. Chartered
corporations, however, must comply strictly with the terms
of their charters, and other corporations are subject to the
ultra vires rule.
Thirdly, a corporation may be liable criminally or in tort,
in circumstances where the wrongful acts of its human agents
can be imputed to the corporation itself. Thus, a company
can be found guilty of breach of duty under the Health and
Safety at Work etc. Act where machinery is inadequately guarded,
but it could not be found guilty of the crime of murder, nor
of the tort of false imprisonment, because these are acts
which by their nature can be committed only by individuals
acting in their private capacity. It is, however, difficult
to draw a dividing line; corporations have, for example, been
found guilty of the crime of conspiracy.
In Griffiths v. Studebakers Ltd (1924) the defendants were
charged with having used on a public road a motor car carrying
more than two persons, which in the circumstances of the particular
case was an offence. At the time of the offence the car was
being driven by a servant of the defendants, whose express
orders he was infringing. The defendants argued that they
as a company were not liable, but it was held that they were.
Lord Hewart, C.J. said:
‘It would be fantastic to suppose that a manufacturer,
whether a limited company, a firm, or an individual, would,
even if he could, always show cars to prospective purchasers
himself; and it would defeat the scheme of this legislation
if it were open to an employer, whether a company or a firm,
or an individual, to say that although the car was being used
under the limited licence in contravention of the conditions
upon which it was granted: “My hand was not the hand
that drove the car.” On these facts there ought to have
been a conviction of (the defendants) and also the driver
as aider and abetter.’
Fourthly, a corporation has ‘perpetual succession’,
in the sense that it has an existence independent of its members
or shareholders, but it can be wound up or liquidated, if,
for example, it is unable to pay its debts.
Types of company. It is necessary now to look at the different
types of company which can be formed under the Companies Acts.
They are of two main types, private companies and public companies.
Private companies. Private companies are companies which by
their articles (the rules which govern their internal affairs):
-restrict the right to transfer their shares;
-prohibit any invitation to the public to subscribe for their
shares or debentures.
Companies which do not subscribe to these riles are public
companies. A public company must have at least two members
and two directors; a private company must have at least two
members and one director. A public company must have an allotted
capital of at least £50,000, with at least 25 per cent
of the nominal value paid up, but this provision does not
apply to private companies. Companies, both private and public,
may be further divided into limited and unlimited companies,
and limited companies may be even further sub-divided into
companies limited by shares or limited by guarantee.
Limitation by shares. Where a company is
limited by shares, the liability of a shareholder is limited
to the value of his shares. At any given time, shares may
be fully or partly paid. Therefore, if a person is the holder
of one thousand £1 shares, 50p paid, his liability is
limited to the cost of his shares plus the amount unpaid,
which in the example is £500. It should be noted that
to speak of a limited company is strictly incorrect; it is
the liability of the shareholders, not of the company, which
is limited.
Limitation by guarantee. Where a company
is limited by guarantee, each member undertakes that on the
winding-up of the company he will contribute to the assets
of the company up to a certain amount, say, £1000, in
which case his liability is limited to that amount. It is
only rarely that a company limited by guarantee also issues
shares to its members, but if it does so they are subject
to both forms of limited liability.
Unlimited companies. Where a company has
unlimited liability, there is no limit on the liability of
members to contribute to the assets of the company to pay
the company’s debts. For obvious reasons, unlimited
companies are rarely found.
Formation of companies. When a company is formed, various
documents have to be filed with the Registrar of Companies.
The most important are the memorandum of association and the
articles of association.
Memorandum of association. The memorandum
of association sets out, for all who wish to know, the name,
nature, and objects of the company. It must contain the following
clauses:
-The name clause. There can be trouble with names. The name
of the company must not be one which is prohibited by statute;
it must not be undesirable, which in general means that the
name must not be too like that of an existing company; it
must not be misleading; and with exceptions for companies
formed to promote art and science, for example, the City of
London Polytechnic, the last words of the name must be ‘public
limited company,’ (abbreviated Plc) or cwmni cyfyngdig
cyhoeddus (abbreviated Ccc) in the case of a company with
its registered office in Wales, if it is a public company.
-The registered office clause. This states whether the registered
office of the company is to be in England or Scotland.
-The objects clause. This is perhaps the most important clause
of all. It sets out the purpose of the company and the extent
of its operations. As already mentioned, a company must not
act outside the scope of its objects clause. It is the modern
practice of companies to draw their objects clauses in very
wide terms, so that if they wish they may engage in activities
other than those for which they are primarily formed. The
objects clause of an insurance company, for example, may permit
it to engage in the business of banking.
-The limitation of liability clause. Whether the company is
limited by shares or by guarantee, there must be a clause
stating that the liability is limited.
-The guarantee clause. In the case of a limited company with
a share capital, there must be a clause stating the amount
of the share capital with which the company proposes to be
registered, and describing the division of the capital into
shares of fixed amount.
-The association clause and subscription. At least seven persons
in the case of a public company, and at least two in the case
of a private company, must subscribe their names to the memorandum.
If the company has a share capital, each subscriber must take
at least one share.
Articles of Association. The Articles of
Association regulate the internal affairs of the company,
dealing with such matters as the rights and duties of shareholders
and directors and the holding of meetings. Every company has
its annual general meeting, and meetings of shareholders other
than the annual general meeting are termed extraordinary meetings.
At the annual general meeting, an account is given of the
company’s affairs over the past year, the dividend to
be paid to ordinary shareholders is agreed, and the directors
are elected or re-elected.
Whenever either the memorandum or articles of association
of a company are altered, a copy of the instrument embodying
the alteration must be sent to the Registrar of Companies,
together with a printed copy of the memorandum or articles
as altered.
Dissolution of companies. A company is dissolved,
that is, its existence ceases, if it is wound up compulsorily,
voluntarily, or under the supervision of the court.
Compulsory winding-up is usually, for practical purposes,
the equivalent of the bankruptcy of an individual, although
there are other reasons why a company may bi wound up compulsorily.
It is usually initiated by either the company itself, a creditor,
or the Department of Trade, and is carried into effect by
order of the court.
A voluntary winding-up is the result of a resolution to that
effect by the shareholders, and does not normally involve
the court at all. However, creditors and other persons whose
interest might be adversely affected by the winding-up may
petition the court for the winding-up to be carried out under
the supervision of the court, or, alternatively, they may
ask the court for a compulsory winding-up.
In whatever way the winding-up is carried out, a liquidator
is appointed. The function of the liquidator is to realise
all the company’s assets, and ensure that all liabilities
are met. Where a company is solvent there are no problems;
all creditors of the company, including the liquidator for
his expenses and fees, are paid, and any surplus is distributed
proportionately to shareholders. Where a company is unable
to pay all its debts, the position is complicated in that
there are detailed rules as to the order in which debts are
to be paid. The only point which need be noted here is that
unless all other debts of the company are paid in full, the
ordinary shareholder of the company will receive nothing.
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