MGSC30H3 Lecture Notes - Lecture 3: Debenture, Legal Personality, Natural Person
Document Summary
Salomon sells his shoe business to a corporation. Salomon holds 20,001 shares, family holds 6, as 7 shareholders were required. Business sold for 10,000 pounds in debentures, 20,000 pounds for the shares and 9,000 pounds in cash. Business failed, and salomon sold the debentures, reinvesting the proceeds in the business. Debenture holders put the corporation into bankruptcy. Trustee claimed salomon was responsible for the debts and corporation was a sham. House of lords (britain"s highest court) reversed. They said corporation was a true legal entity. Corporation a separate person, salomon not responsible. Corporation is a legal person separate from its shareholders (its owners) Shareholders have no personal liability for corporate debts or liabilities. Shareholders are not required to manage the business. Corporations survive the death or departure of shareholders. In the past, a corporation could only do what it was specifically empowered to do when created. Anything else was ultra vires beyond the person.
