A was employed as an office manager in a company...(DU SOL IMPORTANT QUESTION)

 Question1: A was employed as an office manager in a company. He had arrears of his 3 month’s salary and he filed a suit against the Managing Director of the company for the recovery of arrears of his salary. Will he succeed in getting his arrears? Give reasons. Under what circumstances the court may disregard the separate legal entity of a company.

Answer :  

YES he will succed   file a suit against to getting his arrears because due to separate legal status

Separate Legal Entity

The most important consequence of incorporation is that a company is regarded as a person. It has its own rights and the rights are different from the rights of its owners.

Limited Liability

When Shareholders buy shares from a certain Company and pay a certain percentage amount of the shares rather than paying the full amount, and when the company is dissolved, then the shareholders are liable to pay the rest of the amount.

If a shareholder has paid the full amount, he/she is not liable to pay any amount upon dissolution of the company.

Therefore, shareholders have a limited liability.

Perpetual Succession

This refers to the existence of any organization despite the death, bankruptcy, insanity, change in membership of any member from the business. In such instances, the shares are passed on to the next generation.

Ownership of Property

Certain properties can be owned by a company. These properties continue to be owned by the companies regardless of their shareholders and members.

These properties are used when a company needs to borrow money as a security.

These properties may be the present or future assets.

Contractual Capacity

A company has the ability to make contracts.

The company can sue or be sued on the basis of these contracts.

The power to make contracts is delegated to human agents working for the company.

The contracts are carried out by the directors and other agents of the company.

The company, as a person itself, is subjected to the rights and liabilities imposed by the contract.

The term “separate legal entity” is a fundamental concept in law that underlies business law and legal liability.

Not getting it right means that you could:

trade in a way which makes you personally liable for the activities of a company, rather than the company itself sign contracts which make you jointly and severally liable on a contract, when you don’t intend to sign a contract with a non-existent legal entity, and make the contract unenforceable sign a contract with the wrong company within a group of companies lead to unwanted legal proceedings. The proceedings could be brought for say breach of contract, fraudulent misrepresentation, a claim on an indemnity or some other cause of action against you, rather than the legal entity. If it's successful, it can lead to personal liability on the claim.

Macaura v Northern Assurance

Mr Macaura sold all timber to a company (Irish Canadian Saw Mills Ltd) in which he and his nominees held all the shares. Subsequently Mr Macaura insured the timber against fire on policies in his own name. After two weeks, a fire broke out and he claimed the insurance.The insurance company, Northern Assurance Co Ltd, argued that Mr Macaura did not have an insurable interest as a shareholder in the company. They argued that the company is a separate legal entity

When the number of members is reduced below 7 in a public company or 2 in case of a private company and company continues to carry on business for more than 6 months after the membership has so reduced, every person who was the member of the company during the time when it carried on business after those six months and who are aware of this fact, would be severally liable for all the debts of the company contracted after six months. (Sec. 45)

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