Salomon v Salomon & Co established that a company is a separate legal entity from its shareholders, even if one shareholder wholly owns and controls the company. Foss v Harbottle established two rules - the proper plaintiff rule, which says a wrong done to the company can only be addressed by the company, and the majority rule principle, which says a court will not interfere if the alleged wrong can be confirmed by a majority shareholder vote. Automatic Self-Cleansing Filter Syndicate Co. v Cunninghame established that the directors, not shareholders, have discretion over decisions like selling company assets, unless the articles of association are amended.

1. Salomon v Salomon & Co<br />Facts:<br />Salomon converted his existing, successful business into a limited company, of which he was the managing director. Salomon valued his business at #39000 (an honest but wholly inaccurate valuation) debenture and 2001 # 1 shares out of the issued share capital of #20007. Salomon’s wife and five children each held one of the remaining issued shares (seven being the minimum number of shareholders at that date), probably as his nominee. The company went into insolvent liquidation within a year, with no assets to pay off the unsecured creditors. <br />TCH:<br />Mr Salomon did not have to pay the COMPANY’S Creditors since Mr. Salomon and The Company are two Separate (Legal) Entities.<br />Foss v Harbottle<br />Facts: <br />Two minority shareholders initiated legal proceeding against, among others, the directors of the company. They claimed that the directors had misapplied the company’s assets.<br />TCH:<br />When a company is wronged by its directors it is only the company that has standing to sue. In effect the court established two rules. Firstly, the “proper plaintiff rule” is that a wrong done to the company may be vindicated by the company alone. Secondly, the “majority rule principle” states that if the alleged wrong can be confirmed or ratified by a simple majority of members in a general meeting, then the court will not interfere.<br />Automatic S v Cunninghame<br />Facts:<br />Automatic Self-Cleansing Filter Syndicate Co. was a company, incorporated in 1896, that sold filtration system. Among other things, the company’s articles of association allocated powers over contracts, negotiations, and property transactions.<br />McDiarmid, a shareholder, wanted the director to sell part of the assets of the company. At a shareholders’ meeting the shareholders voted in favor of the proposal by 1502 to 198. The directors, however, did not approve of the resolution and refused to enact it. McDiarmid applied to have the directors forced to enact the resolution.<br />TCH:<br />The directors were entitled to reject the offer. They are not agents to the shareholders nor the company. Activities such as sale of company assets is in the discretion of the directors. The shareholders may only interfere with the decisions of the directors through a special resolution by amending the articles of association or the Company’s Constitution, or by dismissing them.<br />Lee v Lee’s Air Farming<br />Facts: <br />Mrs Lee’s husband formed the company through Christchurch accountants, which worked in Canterbury, New Zealand. It spread fertilizers on farmland from the air, known as top dressing. Mr Lee held 2999 of 3000 shares, was the sole director and employed as the chief pilot. He was killed in a plane crash. Mrs Lee wished to claim under the Workers’ Compensation Act 1922, and he needed to be a ‘worker’, or ‘any person who has entered into or works under a contract of service… with an employer… whether remunerated by wages, salary or otherwise.’ The company was insured (as required) for worker compensation.<br />TCH:<br />Lee could not be a worker when he was in effect also the employer. <br />Macura v Northern Assurance Co<br />Facts:<br />Mr Macaura owned the Killymoon estate in Coutry Tyrone, Northern Ireland. He sold the timber there to Irish Canadian Sawmills Ltd for 42,000 fully paid up £1 shares, making him the whole owner (with nominees). Mr Macaura was also an unsecured creditor for £19,000. He got insurance policies – but in his own name, not the company’s – with Northern Assurance covering for fire. Two weeks later, there was a fire. Northern Assurance refused to pay up because the timber was owned by the company, and that because the company was a separate legal entity, it did not need to pay Mr Macaura any money.<br />TCH:<br />Insurers were not liable on the contract, since the timber that perished in the fire did not belong to Mr. Macaura, who held the insurance policy. <br />Hickman v Kent Romney Marsh<br />Facts:<br />Article 49 said disputes between the association and a member should go to arbitration, before court. Mr Hickman complained about refusal to register his sheep in the published flock book and was under threat of being expelled.<br />TCH:<br />There was a contract. Hickman was bound. The predecessor to the Companies Act 2006 section 33 creates a contract, which affects members in their capacity as members, though not in a special or personal capacity (eg as director). As a member, Mr Hickman was bound to comply with the company procedure for arbitrating disputes and could not resort to court.<br />