Law Case Study

Question 1 (ii)

        The effect of incorporation section 16 (5) of Companies Act 1965, that is company has power to own property.

        The law applicable in this case is Companies Act 1965 (CA 1965). Section 4 (1) of CA 1965 define company as a company incorporated pursuant to this Act or pursuant to any corresponding previous enactment.

        The principle of law used is under section 16(5) of CA 1965. The section stated that a body corporate is a legal person that is created and given recognition by law. It is an artificial person that is recognized by law as having power and liabilities like an individual. In the case Solomon v Solomon, where S was a sole trader in shoe manufacturing business, He changed his business to company and sold the business to the company for f39,000. The business did not do well and after sometime become insolvent. The asset of the company were not enough to pay the creditor so the creditor tried to claim from S stating that S and the company were in fact one and the same. However, the court held that the incorporation of the company made the company and member are two separate legal entity.

        Power to own property is where the property of a company is its own, not that of its members. Once a person has sold or given his property to the company, he no longer has right over it. For instance in the case Macaura v Northern Assurance Co. Ltd. Where Macaura owned an estate and he sold all the timber on the estate to a company called Irish Canadian Sawmills Ltd, where he owns all the shares. Macaura had insured the timber that he sold to the company in its own name. After  than, a fire broke out destroying the timber. When Maucara claimed, the insurance company refused to pay. Thus, the court held that, Macaura has no right to claim insurance because the timber was the property of the company.

        Mat, Din and Bad merge into business and formed a company and become the only directors and shareholders in the company. The assets of their previous business are transferred to the company but Mat still continues to insure the business premises in his own name.

        According to section 16(5) of CA 1965, once a company is incorporated the company and member are separate, and the company may own property. Once a person has sold or given his property to the company, he no longer has right over the property anymore. Thus Mat has already transferred his business premises to the company.

        As conclusion, according to section 16(5) company and member are separate legal entity, and company may own property. The previous owner has no right over the property anymore as the property belongs to the company already. Therefore, in this case Mat has no right to claim damages on behalf of the company because company and member are separate. He also has already transferred the business premises to the company.

Question 1 (i)

The issue is lifting the veil of incorporation under section 36 Companies Act 1965, retrenchment of staff.