One-Man Company, or A Sham
One-Man Company, or A Sham
One-Man Company, or A Sham
The next observation is about public policy. To understand the whole picture
it is necessary to mention the business practices in relation to family
business, which may be a more appropriate label for Mr Salomons company
as it was transferred from a business run by his family. The facts
in SALOMON in fact reflected the common practice during the 1890s when
the concept of private company was developing and individuals were
selling their business to new companies for cash, shares and debenture (R
Tomasic, S Bottomley and R McQueen, Corporations law in Australia (2nd ed
Federation Press, Leichhardt 2002), 30). After SALOMON, family businesses
may also enjoy perpetual succession through incorporation, which allows
transfer of ownership by generation (for a detailed discussion, see S P Ville,
Judging Salomon: Corporate Personality and the Growth of British Capitalism
in a Comparative Perspective (1999) 27 FLR 203, 211). As observed by Lord
Buckmaster in RAINHAM CHEMICAL WORKS LTD (IN LIQUIDATION) V
BELVEDERE FISH GUANO CO LTD [1921] 2 AC 465, this encourages
enterprise and adventure by allowing individuals to limit their liability
through incorporation. The case presented an excellent opportunity for the
House of Lords to establish the doctrine of separate legal entity and to
recognise private companies, even at the price of ignoring, if any, the
substantive statutory requirement. Hence, the decision, from this
perspective, is favourable to public policy.
The last observation concerning detriments to the creditors interests,
however, is more controversial, and one of the moot points is whether
private individuals could be benefited from limited liability by incorporation
as this benefit is not available to sole proprietorship or general partnership. It
may lead to people forming companies to generate profit for themselves but
leaving liabilities to the companies. This appears to be unfair to creditors, but
one of the views is that creditors should be aware of the fact that they are
trading with a limited company instead of an individual. This view received
some support from in a New Zealand case TREVOR IVORY LTD V
ANDERSON [1992] 2 NZLR 517 where Hardie Boys J held that [t]he use of a
company to carry on a one-man business may be seen as itself a personal
disclaimer. Furthermore, the use of one-man company can also be a twoedged sword. For example, the House of Lords held in MACAURA V
NORTHERN ASSURANCE CO LTD [1925] AC 619 that the plaintiff, operating
an one-man company and having insured his timber being the property of
the company, lacked insurable interest in the timber as the timber belonged
to his company instead. Although this decision was said to be representing a
fairly narrow view for economically and factually [the plaintiff] was
undoubtedly interested in the timber (see S Barber, Company Law:
Textbook (4th ed Old Bailey Press, London 2003), 6), this is a trade-off for the
benefit of limited liability. One-man companies are therefore prima facie not
law
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