NOTES

Separate Legal Entity

When a company is registered, it becomes a separate legal personality. It comes to have almost the same rights and powers as a human being. Its existence is distinct and separate from that of its members. A company can own property, have bank account, raise loans, incur liabilities and enter into contracts.

It is a different person altogether from the subscribers to the memorandum of association. Its personality is distinct and separate from the personality of those who compose it. Even members can contract with company, acquire right against it or incur liability to it. Only the creditors of a company can sue it for the debts, and not its members.

In Lee v. Lee Air Farming Limited (1960): Lee, a qualified pilot held all but one of the shares in the company and by the articles was appointed director of the company and the chief pilot. The life of the employees of the company was insured by an insurer. Lee died while piloting the company's aircraft and his widow claimed compensation for his death, in the course of his employment. Insurers challenged the claim on the ground that no compensation was due to Lee, as Lee and Lee Air Farming Limited was one and the same person. Held, there was a valid contract of service between Lee and the company and Lee was therefore, an employee. Lee was a separate person from the company and so compensation was due to the widow. The magic of corporate personality enabled Lee to be the master and servant at the same time. Mrs. Lee’s contention was upheld.