Nullity of a Company in English Law Case Study Example | Topics and Well Written Essays - 2500 words

Nullity of a Company in English Law - Case Study Example The essay will then discuss whether such concept is used in English Law as illustrated through cases. Lastly, the essay will then assess, based on the use or lack of usage of the concept of nullity on English Law whether there is a need for such concept. Nullity is a concept that renders an entity, in this case a company, insignificant and non-existent, such that any act made by or in behalf of that company will be rendered invalid as well. This declaration, as recognised by the First Council Directive 68/151/EEC ('First Directive'), is imperative to protect the company in question and their shareholders, as well as third parties that transact with them because of the possible retroactive effect it will have on these parties' actions. Hence, as called for by the First Directive, countries must limit the cases of nullity to decisions by a court of law, and on the grounds that (a) that no instrument of constitution was executed or that the rules of preventive control or the requisite legal formalities were not complied with; (b) that the objects of the company are unlawful or contrary to public policy; (c) that the instrument of constitution or the statutes do not state the name of the... al to be paid up; (e) the incapacity of all the founder members; (f) that, contrary to the national law governing the company, the number of founder members is less than two.1 In this sense, the concept of nullity of a company, as proposed by the First Directive, has a two-fold objective: it is meant to protect companies from trivial and unlawful declarations of nullity, which can be to the detriment of its operations by limiting the grounds for declaring it; and it is meant to protect a company's creditors, as well as the public, by preventing transactions for unlawful and fraudulent acts of unregistered or unlawfully registered companies. Thus, the effect of such declaration is a crucial aspect of company law because companies, as an artificial legal entity, have legal rights and obligations, which will be rendered null and void upon declaration of nullity. The status of companies as a legal entity is embodied in the company's corporate personality, which as stated in Salomon v. Salomon & Co (1897), a company in compliance with regulations of the Companies Acts are distinct legal entities, capable of incurring debts, limiting the liability of its members to the amount invested as prescribed by the companies Act.2 Thus, by virtue of its corporate personality, a company's shareholders and members, as a consequence, have limited liabilities. In addition, a company's corporate personality also accords to it the capacity to enter into legal contractual relations with other persons.3 However, while companies have limited liabilities to its shareholders, its shareholders are also limited in their ownership, such that they do not have ownership of the company's assets, as well.4 In this regard, it is important to note that not all companies have limited liability. As