The Company as a Person - Taking on a ‘Life’ of its Own

The Company as a Person - Taking on a ‘Life’ of its Own Marvin Rowe 5 April 2013 “Corporation: an ingenious device for obtaining individual profit without individual responsibility.”1 Introduction An emotional firestorm erupted when Mitt Romney famously maintained that ‘corporations are people’.2 But the analogies laid out by CJ Marshall and (especially) Lord Denning are useful in helping to understand the fundamental financial and legal limited liability nature of the ‘corporate personality’ because modern companies are in fact distinct legal entities/personas, with their own purposes, rights, responsibilities, debts and even torts, completely separate from those of its shareholders3, a principle firmly established by Salomon v Salomon4, where the House of Lords overturned the Court of Appeal’s decision, thus solidifying this most fundamental principle of company law today.5 The Humanlike Analogy These analogies are especially useful in demonstrating that the “Company” can own its own property, have its own domicile and enter into its own agreements separate from or even with its own shareholders.6 Like humans, the Company has its own income and assets, as well as obligations such as tax liabilities and debts, which remain segregated from those of its shareholders, even if wholly owned by another person or Company, as found in Gramophone7.8 Finally, the Company, like a person, can even be guilty9 of or victim to a crime.10 Such analogies, however, can be misleading because Companies possess no tangible body or soul and thus, obviously, cannot be granted certain human rights such as the right to vote nor can they be punished by imprisonment.11 The analogy becomes further misleading in those certain rare circumstances12 where the Company can be altogether disregarded via either a ‘statutory lifting’ of the 1 Ambrose Gwinnett Bierce (born June 24, 1842 and thought to have died sometime after December 26, 1913) was an American editorialist, journalist, short story writer, fabulist, and satirist. Quote from The Devil’s Dictionary 2 Philip Rucker, ‘Mitt Romney says “corporations are people” at Iowa State Fair’ (Washington Post, 11 August 2011) <http://articles.washingtonpost.com/2011-08-11/politics/35270239_1_romney-supporters-mitt-romney-private-sectorexperience> accessed 4 April 2013 3 The term used herein to include shareholders, officers, directors, Members, Managing Members, etc. 4 & Co Ltd [1987] AC 22 5 Brenda Hannigan, Company Law (3rd edn., Oxford University Press, 2009) 40, 42; Oscar Shub, ‘Separate corporate personality – piercing the corporate veil’, A paper delivered for the Federation of Defense & Corporate Counsel (FDCC) 111, 1 6 Hannigan (n 4) 40, 42 7 & Typewriter Co Ltd v Stanley [1908] 2 KB 89 8 Hannigan (n 4) 40, 41 9 Separate and apart from its shareholders, directors, officers, Members 10 Hannigan (n 4) 40-44, 64-66 11 ‘Introduction to the Law of Business Organisations’ (n.d.) Week 1 Lecture Notes: Law of Business Organisations (April May 2013), University of Liverpool 12 Although a 2001 study of the limited liability clause as it relates to Australian case law, it was found that corporate piercing cases have risen considerably over time, the courts seem less willing to lift the corporate veil of a public company than of a private company, as the number of shareholders of a company increases, the number of cases where the corporate veil was pierced decreases, lifting the corporate veil is less frequent against parent companies than against individual shareholders and courts lift the corporate veil more often in contract disputes than in torts. corporate veil such as in cases of tax avoidance or suspected enemies of the state or through ‘judicial inroads’ (fraud or ‘sham’), as was found in Donnelly-v-Edelsten13 and Trebanog14 and, in these ways, the shareholders and the Company are deemed to be one-and-the-same, an impossible feat for a real person.15 As a proponent of the Company, I believe Lord Denning’s analogy is more ‘useful’ in that it better personifies the Company and its characteristics. That said, I also believe CJ Marshall’s explanation is more accurate because, clearly, a Company is not a person but, rather, as Marshall so eloquently affirmed, ‘exists only in contemplation of law’ for the chief purpose of enveloping men and their fate of ‘perpetual succession’, in an invisible cloak, allowing them to hold property while freeing them from the ongoing burden of conveyance.16 Other analogies that might be usefully employed to understand the Company functions is to compare the Articles of Association to a constitution and bill of rights, perhaps interspersed with elements from the Ten Commandments; the Certificate of Incorporation to a birth certificate; and I have personally heard the Company itself referred to as a ‘shield’ or ‘shell’.17 The use of these analogies support the fact that the Company is a separate legal entity from its shareholders and that it has almost its own ‘being’. Conclusion Perhaps the most useful purpose of personifying the Company is to soften its image as an evil corporate machine (to some) by presenting it in a more ‘human’ light, which is important because, after all, Company law comprises a very sizeable percentage of the world’s economic activity today. The debate is ongoing as to whether Company law is primarily meant to enable or, conversely, to regulate a Company’s activities18.19 Clearly it is and should be an equitable mixture of both but, alas, this issue remains the focus of heated debate. 13 (1994) 13 ACSR 196 Working Men’s Club and Institute v MacDonald [1940] 1 KB 576 15 Hannigan (n 4) 43, 45; Shub (n 4) 1-11, 1-3, 11 16 Trustees of Dartmouth College v Woodward, 17 U.S. (4 Wheat.) 518, 4 L. Ed. 629 (1819); Hannigan (n 4) 44; Lecture Notes (n 10) 17 And having the distinct pleasure of owning and managing a German corporation, have myself referred to them, on at least one occasion, as corporate ‘handcuffs’. 18 Although, it is fairly accurate to say that 19th century legislation was generally enabling while the 20th century has been generally more regulatory 19 Lecture notes (n 10) 14 * Marvin Rowe completed his Master of Laws (LL.M.) in International Finance and Banking Law, University of Liverpool Law School. Marvin is currently the Global Markets representative for Swiss International Finance Group, a SRO Registered Financial Services firm specializing in private and public company financing and IPOs on various major stock exchanges. With a wealth of experience from a distinguished 20-year international investment-banking career, Marvin Rowe has emerged as a leading expert on pre and post-IPO capital raises, stock exchange IPOs, and all areas of public company operations, legal and compliance. Originally from the great state of Texas (US), Marvin Rowe now lives in Zurich, Switzerland.