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Sam's Liability for SamCom Ltd's Obligations - Essay Example

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Sam’s Liability for SamCom Ltd’s Obligations Promoter Liability and Pre-Incorporation Contracts Sam is a promoter under the definition put forth by Twycoss v. Grant [1877] 2 CPD 469, as he was the person who filed for the articles of incorporation and got the new corporation started…
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Sams Liability for SamCom Ltds Obligations
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Download file to see previous pages Promoters also have a fiduciary duty to the shareholders, as he stands in the same position as a company director. As such, Sam cannot make a secret profit and he must have full disclosure with any transaction that he takes while he is the promoter of the company. He also cannot serve himself at the expense of the shareholders (Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218). The facts state that the business that became SamCom Ltd was valued at ?50,000, yet the business was sold to SamCom Ltd for ?90,000. This might be a breach of Sam’s fiduciary duty to his shareholders (Cahn & McDonald, 2010), if he did not disclose that his company was worth substantially less than what SamCom Ltd. paid for it. The solicitor who Sam hired to take the necessary steps for incorporation, however, is not considered a promoter, as Re Great Wheal Polgooth Co. Ltd. (1883) 53 LJ Ch 42 established that persons who are acting as a professional capacity at the behest of the promoter, such as solicitors, do not become promoters. As for the contract to buy the silicon chips for ?5,000, this is a pre-incorporation contract, and the company would not be bound on this contract. This was established in the case of Kelner v Baxter (1866) LR 2 CP 174, which established that pre-incorporation contracts do not bind the company. ...
was incorporated, so the company would not be bound by this contract. Separate Personality of the Company and Lifting the Veil On the facts, it may be assumed that this is a closely held corporation. This does not, however, negate the separate legal personality of SamCom Ltd. According to established English law, a corporation is a separate legal personality who has the ability to sue and be sued and hold debts in its name (Wild & Weinstein, 2011). Moreover, the fact that only one person is a corporation does not defeat the separate legal personality of the corporation. This was established in the seminal case of Salomon v. Salomon & Co. [1897] AC 22. In this case, Salomon made leather boots, and he was basically the sole bona fide shareholder of his company. The company went into liquidation, and the creditors attempted to make Salomon personally liable for the company's debts. The Salomon court held that, as long as a company is a legal entity, then the business, and the debts, belongs to the company, not to the shareholder(s). In this case, the lower courts had attempted to say that Salomon himself was liable, because he was the only interested shareholder – the other shareholders were his family members, and they were disinterested. The House of Lords held, however, that this does not defeat the claim of corporate personality. Therefore, this case may be applied to the facts, in that SamCom Ltd. is a closely held corporation, but, as per Salomon, the corporation would still have a separate legal personality and Salomon further demonstrated that corporations, because they are separate legal entities, will be liable for the debts incurred by ...Download file to see next pagesRead More
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