Law and You > Corporate Laws > Companies Act, 2013 > Situational Problems on Separate Legal Entity of a Company.
Q1. X, a Managing Director of an Aviation Company, in the capacity appointed himself as a pilot of the company. While piloting an aircraft of the company in the course of business he was killed. His widow intends to recover the compensation under Workmen’s Compensation Act. Decide.
Yes she can recover compensation from the company. Though the company was incorporated by ‘X’ and he was Managing Director as well as employee of the company, he and the company were two separate entity. Under the Companies Act, the Company has separate legal entity separate from its members. Hence his widow has all rights to recover compensation from the company under Workmen’s Compensation Act.
Facts are similar to the case Lee v. Lee’s Air Farming Ltd. (1961 AC 12)
Q2. A company consisting of 25 shareholders was registered as Shri Krishna and Company. Each shareholder contributed an amount of rupees 10,000/- towards capital. The company incurred a loss of Rs. 5 Crores. A finance company which has given a secured loan of Rs. 2 Crores want to proceed against the personal property of one shareholder for realising the loan of Rs. 2 Crores. Decide.
The finance company cannot recover the loan from any individual shareholder. Under the Companies Act, the Company has separate legal entity separate from its members. At the same time the liability of a shareholder is limited only to the extent of unpaid amount of his shares not more than that. Due to secured loan the finance company should be paid first from the property left after winding up of the company.
Facts are similar to the case Salomom v. Salomon Company Ltd. (1897 AC 22)
Q3. During the war all the members of private company, while in general body meeting were killed by a bomb blast. Does the company ceases to exist because all the members died?
The company exists even after death of all members of the private company. Under the Companies Act, the Company has separate legal entity separate from its members. At the same time company has perpetual existence. The successors of the members occupy the positions of deceased members and continue the business.
Facts are similar to the case Lee v. Lee’s Air Farming Ltd. (1961 AC 12)
Q4. Ramu & Company had Yamaha motor bike. The company insured it upto 31st December 2013. Raju purchased the motor bike from Ramu & Company on 1st September 2013. Ramu transferred the ownership of the motor bike on his name on the same day i.e. 1st September 2013. Raju did not insure the motor bike as he thought the motor is insured upto 31st December 2013 by Ramu. Raju met an accident on 1st October 2013, and the motor bike was damaged. The insurance company died its liability to pay compensation. Advise Raju.
Raju will not get the compensation. The motor bike was insured by the company which has separate legal existence. Under the Companies Act, the Company has separate legal entity separate from its members. Thus it was duty of Raju to insure the motor bike after buying it from Ramu & Company and when he transferred the motor bike on his name. He neglected his duty.
The facts are similar to the case Macaura v. Northern Assurance Co. Ltd., (1925) AC 619
Q5. A transferred certain land to B on the condition that B would never sell the land to black coloured persons (Negroes). B sold a land to accompany promoted by and exclusively represented by Negroes. A took action for the annulment of this conveyance on the ground that property in effect had passed to black coloured persons. Will he succed?
He will not succeed. Under the Companies Act, the Company has separate legal entity separate from its members. As company has separate legal entity it cannot be termed to be black coloured on the basis of the colour of the members.
At the same time the condition of prohibition to sell land to black coloured persons itself is unconstitutional.
Q6. Ten members formed a private limited company and started publishing newspaper. The Government of India allotted newsprint quota for it. They sold the newsprint in black market and made money. Can corporate veil be lifted in this case.
Yes, corporate veil can be lifted in this case. They have incorporated the company for publishing newspaper but their intention by evidence shows that they want to do trade in the newsprint in black market and make money. It amounts to fraud. Hence, under the Companies Act the corporate veil can be lifted.
Related Topics:
- Corporate Personality and Separate Legal Existence
- Limited Liability of Members
- Separate Property of Company
- Disadvantages of Incorporation of a Company
- Lifting of Corporate Veil
- Concept Application 1.3 (Short Notes)
- Concept Application 1.4 (Essay Type Answers)