The concept of separate legal personality in to corporat3e regime, puts on the company the clear of the human beings that it begins to act and been seen just as human in law. Human beings are normally regarded as legal persons, they are subject to the legal systems within which they find themselves. The legal system in Nigeria not only imposes obligations but also confers rights. Human beings are capable of so may activities like getting married, having children, becoming sick, dying, going to jail etc. But due to the artificial or metaphysical nature of corporate personality, one begins to wonder how a company can get married, and whether the company is male or female etc. This in fact had always been the point of misunderstanding on the concept of corporate personality. In essence humanity is a state of nature and legal personality is an artificial construct which may or may not be conferred. Thus the need for this exposition on the jurisprudence of the concept of separate legal personality. Separate legal personality is a consequence of incorporation under the corporate law regime.
THE CONCEPT OF SEPARATE LEGAL PERSONALITY UNDER THE CORPORATE LAW REGIME
The case of Salomon v Salomon (1897) A. C 22, HL is often considered the basis on which the jurisprudence the of corporate personality is established. And the facts of case therefore will be highlighted before I discuss further. Salomon was a leather merchant and boot manufacturer. In 1892 he formed a limited company to take over the business. He and six other members of his subscribed its memorandum for one share each, and he and two of his sons were appointed directors. The company paid some 39,000 pounds to Salomon for the business, the mode of payment being to give Salomon 10,000 pounds in debentures, secured by a floating charge on the company’s assets and 20,000 pounds shares of 1 pound each, the balance of some 9,000 being paid to Salomon in cash. The business did not prosper and when it was wound up a year later its liabilities (including the debenture debt) exceeded its assets by some 8,000. The liquidator representing the unsecured creditors claimed that the company’s business was in reality still Salomon’s, the company being merely a sham designed to limit Salomon’s liability for debts incurred in carrying it on and therefore Salomon should be ordered to indemnify the company against its debts, and payment of the debenture debt to him should be postponed until the company’s other creditors were satisfied.
The final judge Vaughan Williams, J agreed with the liquidator. He HELD that the subscribers of the memorandum, other than Salomon, held their shares as mere nominees for him and Salomon’s sole purpose in forming the company was to use it as an agent to run his business for him.
The court of Appeal reached the same conclusion as the trial judge but for different reasons. They HELD that the Company’s Act were intended to give privileged of limited liability only to genuine independent shareholders and not to a man who was really the sole owner of the business and who merely found six nominees to join with him going through the formalities of incorporation.
The House of Lords unanimously reversed the trial judge and the court of Appeal is judgment and HELD that the company was a separate and distinct person. The debentures were perfectly valid and Salomon was entitled to the remaining assets in part payment of the secured debenture held by him. In the word of Lord Machnaghten “The company is at law a different person altogether from the subscribers to the moranducm and though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers and the same hands receive the profits, the company is not in law the agent of the subscribers as members liable in any shape or form except to the extent and in the manner provided by the Act”. The concept of separate corporate personality, therefore means that once a company is registered, it becomes a separate person from the individuals who are its members. It has capacity to enjoy legal rights and is subjected to legal duties which do not concide with that of its members. It has legal personality and is always referred to as “Artificial Person” as opposed to a human being, a natural person. It therefore follows that it is through registration that one can create a corporation.
Section 37 of the companies and Allied Matters, Act, 2004 provides for the effect of registration thus “As from the date of incorporation mentioned, in the certificate of incorporation, the subscriber of the memorandum together with such other persons as may, from time to time become members of the company shall be a body corporate by the name contained in memoranducm, capable forthwith of exercising all the ;powers and functions of an incorporated company including the power to hold land and having perpetual succession and a common sense but with such liability on the part of the numbers to contribute to the assets of the company in the event of its being wound up as mentioned in this Act”. Legal personality is a creature of statute, the law may grant legal personality to any group or persons being a creation of law, it is artificial being a creation of law, it is artificial and it may therefore be conferred on groups of people in order to achieve a particular purpose. Historically, the corporate personality had always been used and conferred on religious groups in England.
Traditionally, a corporation being a person in law is separate and distinct from its members. But it was not clear whether this also applies to incorporated Joint Stock Companies until the House of Lords decision in the case of Salomon V. Salomon and Co (1897) A.C 22, as discussed above.
The doctrine that company is a legal entity, existing separate and distinct from its shareholders is a legal theory esalished upon an expedient theory. It is a universal legal concept which proposes that an incorporated company is as matter of law separate legal entity distinct from the individual or individuals who are its shareholders and directors andare in control of its operations. The business, debts and other obligatins of the company is the company’s business and not the shareholders’ or directors’ as the case may be. Thus, the decision of the Court in Lee V. Lee’s Air Farming Ltd. This concept is a common law concept that according to Gower in his book titled “Modern Principles of Company Law” was inter-alia introduced to cater for circumstances which tends to accumulate all the debts and liabilities upon an individual. The concept therefore acts as a shield and helmet to such individual or individuals who own all or substantial amount of shares of a company. The company is not in law, the agent for the subscribers or trusteers for them. Nor are the subscribers as members in any shape or form, except to the extent and in the manner provided by the Act.
ADVANTAGES OF THIS CONCEPT OF SEPARATE LEGAL PERSONALITY
1. It allows for legal action to be taken against the company not individuals within it.
2. Shareholders do not have holdings on any property the company considers an assets; as illustrated in Macaura V. Northern Assurance Company Ltd (1925) A.C 619
3. A company will still exist even where members pass away as it is an entity in its own right provided it can comply with all regulations of the COMPANIES AND ALLIED MATTERS ACT, 2004. It will remain until such time where it is decided to wind up the business or if it faces unfortunate administration.
4. A company being a separate legal personality can enter into contracts as an individual can, however it is subject to one major limitation from which the individual is free. It cannot enter into a contract which is untravires.
DISADVANTAGES OF THE CONCEPT OF SEPARATE LEGAL PERSONALITY
1. The company is liable for its debts, this is because there is limited liability on the part of the shareholders.
2. The corporation tax is also to the disadvantage of the company while it needs to ensure certain information is made available while making returns to the Corporate Affairs Commission which is the Companies Registration Office.
3. The company cannot enter into a contract which is ultra vires its Memorandum of Association and Articles.
APPLICATION OF THIS CONCEPT IN NIGERIA
In Nigeria the concept of separate legal personality have been recognized and applied in a plethora of cases. The Supreme Court in Rev. Rufus Iwuajoku Onuekwusi and 8ors V. The Registered. Trustees of the Christ Methodist Zion Church. Per Fabiyi J.S.C held “once trustees have been registered, they become a body corporate by the name in the certificate and shall have perpetual succession. The body becomes a legal entity with powers to sue and be sued in the corporate name. The death of trustees cannot deny the registered body of its existence and capacity to sue”.
Also in the Nigerian case of Akinwunmi Alade v Alic (Nigeria) Ltd, the court recognized that the concept of separate legal personality of a company draws a veil of incorporation over the company where it held per Suleiman Galadima J.S.C. that “The consequences of recognizing the separate personality of a company is to draw a veil of incorporation over the company. One is therefore generally not entitled to go behind or left this veil...”
The effect of separate legal personality is that the company is at law a different person altogether from the subscribers to the memorandum; though it may be that after incorporation, the business is precisely the same as it was before, and the same persons are managers and the same hands receive profits, the company is not in law the agent for the subscribers or trustees for them. Nor are the subscribers as members in any shape or form, except to the extent and in the manner provided by the Act
In conclusion knowing that the concept of separate legal personality is an effect of incorporation. Nigerian based companies usually consider its benefits and detriments before incorporation.
. Gower and Davies, Principles of Modern Company Law (7th Edition) London Sweet and Maxwell (2003).
. N Hawke, Corporate Liability, London Sweet and Maxwell (2000).
. J.O Orojo, Company Law and Practice in Nigeria (5th Edition) Lexis Nexis ( )
. M.O Sofowara, Modern Nigerian Company Law,
. Companies and Allied Matters Act, 2004 (CAMA).
. www.lawteacher.net,2015 visited on 26th January, 2015