Chapter 4Classification and survey of types of business organisationLooking behind the corporate personality
This idea of corporate personality can lead to abuse and
where, for example, it has been used to avoid legal obliga-
tions, the courts have been prepared to ignore the separate
personality of the company (or draw aside the corporate
veil or curtain) and treat the business as if it was being
run by its individual members. An illustration of this
appears in the following case.
Corporations sole
All the forms of corporation which have been discussed
so far have one feature in common which is that they are
corporations aggregate, having more than one member.
However, English law also recognises the idea of the cor-
poration sole which is a corporation having only one
member.
A number of such corporations were created by the
common lawyers in early times because they were con-
cerned that land did not always have an owner and that
there could be a break, however slight, in ownership.
Church lands, for example, were vested in the vicar of
the particular area and at higher levels in other church
dignitaries, such as the bishop of the diocese. When such
persons died, the land had no legal owner until a succes-
sor was appointed to the job so the common lawyers
created the concept of the corporation sole under which
the office of vicar or bishop was a corporation and the
present vicar or bishop the sole member of that corpora-
tion. The land was then transferred to the corporation
and the death of the particular vicar or bishop had
thereafter no effect on the landholding because the cor-
poration did not die and continued to own the land. The
Bishop of London is a corporation sole and the present
holder of the office is the sole member of the corpora-
tion. The Crown is also a corporation sole.
It does not seem likely that any further corporations
of this sort will be created by the common law but they
can still be created by Act of Parliament. For example,
the Public Trustee Act 1906 sets up the office of Public
Trustee as a corporation sole. The Public Trustee will act
as an executor to administer a person’s estate when that
person dies, or as a trustee, to look after property for
beneficiaries such as young children, and a lot of prop-
erty is put into his ownership for the benefit of others77The subscribers to the company’s memorandum met
and appointed Mr Salomon and his two elder sons direc-
tors and, therefore, agents of the company (see further,
Chapter 6 ). The company gave Mr Salomon 20,000
shares of £1 each in payment for the business and he
said that a further £10,000 of the purchase price could
be regarded as a loan to the company which it could
repay later. Meanwhile, the loan was secured on the
assets of the company. This charge on the assets made
Mr Salomon a secured creditor who, under the rules of
company law, would get his money before unsecured (or
trade) creditors if the company was wound up. The com-
pany fell on hard times and a liquidator was appointed.
The assets were sufficient to pay off the debentures but
in that event the trade creditors would receive nothing.
The unsecured creditors claimed all the remaining
assets on the ground that Mr Salomon and the company
were one. Thus he could not lend money to himself or
give himself a security over his own assets. Eventually,
the House of Lords held that the company was a sep-
arate and distinct person. The loan and the security were
valid transactions between separate individuals, i.e. Mr
Salomon and the company, and therefore Mr Salomon
was entitled to the remaining assets in payment of the
secured loan.
Comment.The creditors of Mr Salomon’s original busi-
ness had been paid off. The unsecured creditors were
creditors of the company and the House of Lords said
that they must be deemed to know that they were deal-
ing with a limited company whose members, provided
they had paid for their shares in full, could not be obliged
to meet its debts.Gilford Motor Co Ltd vHorne(1933)Mr Horne had been employed by Gilford. He had agreed
to a restraint of trade in his contract under which he
would not approach the company’s customers to try to
get them to transfer their custom to any similar business
which Mr Horne might run himself.Mr Horne left his job with Gilford and set up a similar
business using a registered company structure. He then
began to send out circulars to the customers of Gilford
inviting them to do business with his company.
Gilford asked the court for an injunction to stop Mr
Horne’s activities and Horne said that he was not com-
peting but his company was and that the company had
not agreed to a restraint of trade. An injunction was
granted against both Mr Horne and his company to stop
the circularisation of Gilford’s customers. The corporate
structure could not be used by Mr Horne to evade his
legal contractual duties.