The Fallacy of Corporate Moral Agency by David Rönnegard

Author:David Rönnegard
Language: eng
Format: epub
Publisher: Springer Netherlands, Dordrecht

10.4 The Separation of the Corporation from the Shareholders and the Emergence of the Corporate Share as an Autonomous Form of Property

In law the corporation is considered as a completely distinct entity from the shareholders who incorporate the company. As we shall see this has led to the important legal development of corporate shares being regarded as property in their own right, which in turn has influenced the popularity and economic importance of the corporate legal form.

The most famous rendering of the separation of the corporation from its shareholders was given in 1897 in Solomon v. Solomon & Co Ltd when Lord Macnaghten stated: “The company is at law a different person altogether from the subscribers to the memorandum; 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 or trustee for them.”

The corporation conceived as a separate legal entity was already in place several decades before Solomon v. Solomon Co. Ltd. Nowadays, it is often assumed that the complete separation of corporation and shareholder is a direct consequence of the act of incorporation. This was however not the case in the late eighteenth century and only developed towards the middle of the nineteenth century. Paddy Ireland (1996: 45) writes: “while incorporation had very important legal consequences, for many years [early nineteenth century] a complete separation of company and members was not among them.” Interestingly Ireland also mentions that the legal development of the corporation as a separate legal entity was also followed by a similarly linguistic development. The corporation nowadays is usually referred to in the singular “it”, but in the early nineteenth century when shareholders were still regarded as forming the corporation it was referred to in the plural “they”.13 Up until the 1856 Joint Stock Companies Act corporations were referred to in the plural and said that persons “form themselves into an incorporated company” with the implication that the persons were the company and thus made of them. It was not until the 1862 that corporations were said to be made by people and not of people (Ireland 1996). The 1862 Companies Act clearly indicates that the corporation is to be regarded as a completely distinct legal entity and this was rendered 25 years before Solomon v. Solomon & Co. Ltd.

Lee v. Lee’s Air Farming Ltd (1961) is an interesting case to illustrate the corporate status as a distinct legal entity. Lee was the sole director, the main employee and the controlling shareholder of Lee’s Air Farming Ltd in New Zealand. Lee’s role as an employee was as a pilot. Following Lee’s accidental death his widow brought a claim against the company. The question before the court was if Lee could be considered as a “worker” for the purposes of the New Zealand Workers’ Compensation Act of 1922. It was ruled that Lee’s duties as

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