ACCT 3152

Company Law
Introduction & Separate Legal Entity
 Introduction

• Instructor Profile
• Why study law?
• Getting to Know You
 Assessment

• Group Presentation (10%)

• Intra-Group Evaluation for Assignment (10%)
• Midterm Group Assignment (20%)
• Final Examination (60%)
 Group Presentation
• Rubrics can be found in the course outline.
• Form a group of 5-7 students. Around 15 minutes.
• The presentation topics can be found on BlackBoard.
• Each week there will be two groups conducting the presentations. (From
week 5 to week 13) Topics will be randomly assigned to the groups.
• Please send your group list to the TA by 22 September 2023.
• The presentation schedule will be released on 25 September 2023
 Midterm Group Assignment
• You should form a group of 3-5 people. (no exception)
• Cross-section group formation is allowed but not recommended.
• The mid-term assignment question will be released on 3 October 2023.
• Submit the assignment and veriguide declaration to Blackboard on 3
November 2023. (by group leader)
• Submit individual INTRA-GROUP EVALUATION to Blackboard on 6
November 2023. (by individual)
 How to perform well in intragroup evaluation form

(1)Reply messages/emails asap

(2)Even workload distributions (i.e. act like a leader and do nothing)
(3)Meet internal deadlines (send to your teammates earlier if you are not sure)
(4)Don’t copy and paste (i.e. from AI tools)
 Problems with AI tools
• The Samsung Incident
Suspected leakage of data

• ROBERTO MATA v AVIANCA, INC

A US lawyer who used Chatgpt for writing submission to Court and the Court
found that the case laws are fake cases.
 How to answer questions for law course?

• Question type: Scenario or essay type question

• What is IRAC?
• What is an authoritative source?
• Textbook. Case law. Legislation. What else?
 How to study law?
• Legislation
• Case law
• Textbook
• Journal articles
• Use of database
• Primary and secondary sources
• Authoritative sources
 Why study law?
• As a student
• As a citizen
• As an employee
• As an employer
 What is a company?
Cap 622 Companies Ordinance
Section 2
company(公司) means—
(a) a company formed and registered under this Ordinance; or
(b) an existing company;
existing company (原有公司) means a company formed and registered under a
former Companies Ordinance;
 Organs of the company
• Members in general meeting
• Board of directors

Power of board of directors:

Power of shareholders:
- Own the shares (with dividend)
- Pass resolutions that are related to the interest of the shareholders
(i.e. alteration of share capital
- power to REMOVE THE DIRECTOR (section 462)
Section 563: Ordinary = simply majority -> req. 50% pass
Section 564: Special resolution -> req. 75% pass
Power to manage the company
(1) Manage the assets of the comapny
(Shareholders cannot affect this power)
(2) Whether to commence litigation or not
(whether to go to the court/ sue sth or not)
 How to form a company?
Cap 622 Companies Ordinance
Section 67 Formation of company
(1) Any one or more persons may form a company by—
(a) signing the articles of the company intended to be formed; and
(b) delivering to the Registrar for registration—
(i) an incorporation form in the specified form; and
(ii) a copy of the articles.
(2) A company may only be formed for a lawful purpose.
 Incorporation Form and
Articles of Association
• Incorporation Form
https://www.cr.gov.hk/en/forms/specified.htm
• Cap 622H Companies (Model Articles) Notice
https://www.elegislation.gov.hk/hk/cap622H
• Sample Articles of Association
https://www.cr.gov.hk/en/electronic/e-registry.htm#collapse-registration-05
 Articles of Association
• Directors and Company Secretary
• Decision-taking by Members
• Shares and Distributions
 Articles of Association
Breach AoA -> Damages

Section 86.Effect of articles

(1)Subject to this Ordinance, a company’s articles, once registered under this
Ordinance or a former Companies Ordinance—
(a)have effect as a contract under seal—
(i)between the company and each member; and
(ii)between a member and each other member; and
(b)are to be regarded as containing covenants on the part of the company and of each
member to observe all the provisions of the articles.
 Articles of Association
(2)Without limiting subsection (1), the articles are enforceable—
(a)by the company against each member;
(b)by a member against the company; and
(c)by a member against each other member.
(3)Money payable by a member to the company under the articles—
(a)is a debt due from the member to the company; and
(b)is of the nature of a specialty debt.
 Different types of company
Section 7 Limited company
For the purposes of this Ordinance, a company is a limited company if it is a
company limited by shares or by guarantee.

Section 10 Unlimited company

For the purposes of this Ordinance, a company is an unlimited company if
there is no limit on the liability of its members.
 Different types of company
Section 8 Company limited by shares
(1)For the purposes of this Ordinance, a company is a company limited by shares if
the liability of its members is limited by the company’s articles to any amount unpaid
on the shares held by the members.
(2)For the purposes of subsection (1), the liability of the members of an existing
company is to be regarded as being limited by the company’s articles to any amount
unpaid on the shares held by the members if a condition of the memorandum of
association of the company stating that the liability of the members is limited is
regarded as a provision of the articles by virtue of section 98.
 Different types of company
Section 9 Company limited by guarantee
(1)For the purposes of this Ordinance, a company is a company limited by guarantee if—
(a)it does not have a share capital; and
(b)the liability of its members is limited by the company’s articles to the amount that the
members undertake, by those articles, to contribute to the assets of the company in the event
of its being wound up.
(2)Subsection (1)(a) does not apply if the company was formed as, or became, a company
limited by guarantee under a former Companies Ordinance before 13 February 2004.
 Different types of company
Section 11 Private company
(1)For the purposes of this Ordinance, a company is a private company if—
(a)its articles—
(i)restrict a member’s right to transfer shares;
(ii)limit the number of members to 50; and
(iii)prohibit any invitation to the public to subscribe for any shares or debentures of
the company; and
(b)it is not a company limited by guarantee.
 Different types of company
Section 12 Public company
For the purposes of this Ordinance, a company is a public company if—
(a)it is not a private company; and
(b)it is not a company limited by guarantee.
 What can a company do?
Cap 622 Companies Ordinance
Section 115.Company’s capacity etc.
(1)A company has the capacity, rights, powers and privileges of a natural person of full age.
(2)Without limiting subsection (1), a company—
(a)may do any act that it is permitted or required to do by its articles or any Ordinance or rule of law; and
(b)has power to acquire, hold and dispose of land.
(3)In this section—
land (土地) includes any estate or interest in land, buildings, messuages and tenements of any nature or kind.
 Recap of Contract Law and Tort Law
• Formation of contract (offer, acceptance, consideration, intention to create legal
relations)
• Vitiating factors
• Negligence
• Why these issues are relevant to company law?
• https://www.scmp.com/news/hong-kong/society/article/3179012/teletubbies-
scare-father-boy-accused-damaging-hk52000-
statue?module=perpetual_scroll_0&pgtype=article&campaign=3179012
 Separate Legal Entity
Definition
• Company itself is a legal person.
• Company itself is not the members of the company.
 Salomon v Salmon [1897] A.C. 22
Fact:
• Aron Salomon, with a boot making business, traded as a sole proprietor but later sold the
business to a limited company which was established by Aron.
• There are seven shareholders in total for the said company, Salomon owed 20,001 shares
and the rest owed 1 share each. (wife and children) Aron and two sons are the directors of
the company.
• Later, the company was placed into liquidation and after satisfying the debentures, there’s
not enough money to pay creditors.

Issue: Is Aron liable to the creditors?

 Salomon v Salomon [1897] A.C. 22
LORD MACNAGHTEN
“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. Nor are the subscribers as members liable, in
any shape or form, except to the extent and in the manner provided by the
Act.”
 Macaura v Northern Assurance
([1925] A.C. 619)
Fact:
The company owed the timber and the sole shareholder (also a creditor) placed
an insurance on the timber.
A fire damaged the timber. The shareholder sued against the insurer to recover
the loss. The case was referred to arbitration.
Issue:
Could the shareholder claim against the insurer based on the insurance policy?
 Macaura v Northern Assurance
([1925] A.C. 619)
LORD BUCKMASTER
“Turning now to his position as shareholder, this must be independent of the
extent of his share interest. If he were entitled to insure holding all the shares
in the company, each shareholder would be equally entitled, if the shares were
all in separate hands. Now, no shareholder has any right to any item of
property owned by the company, for he has no legal or equitable interest
therein. He is entitled to a share in the profits while the company continues to
carry on business and a share in the distribution of the surplus *627 assets
when the company is wound up.”
 Lee v Lee’s Airfarming [1961] A.C. 12
Fact:
Mr. Lee was the governing director, controlling shareholder and also the chief pilot of the company.
An accident occurred and he was killed when piloting an aircraft of the company. His wife claimed
compensation from the company.
Section 3 (1) of the Workers' Compensation Act, 1922, of New Zealand , provides that if "personal injury by
accident arising out of and in the course of the employment is caused to a worker, his employer shall be liable to
pay compensation.“
Worker is defined in section 2 as "any person who has entered into or works under a contract of service ... with
an employer ... whether remunerated by wages, salary, or otherwise.“
Issue: whether Mrs. Lee could claim against the company under the Workers Compensation Act 1922?
 Lee v Lee’s Airfarming [1961] A.C. 12
Judicial Committee of the Privy Council
“Their Lordships conclude, therefore, that the real issue in the case is whether the position of
the deceased as sole governing director made it impossible for him to be the servant of the
company in the capacity of chief pilot of the company. In their Lordships' view, for the
reasons which have been indicated, there was no such impossibility. There appears to be no
greater difficulty in holding that a man acting in one capacity can give orders to himself in
another capacity than there is in holding that a man acting in one capacity can make a contract
with himself in another capacity. The company and the deceased were separate legal entities.
The company had the right to decide what contracts for aerial top-dressing it would enter into.
The deceased was the agent of the company in making the necessary decisions. Any profits
earned would belong to the company and not to the deceased.”
 Good Profit Development Ltd v Leung Hoi
[1992] 2 HKC 539
Fact:
A limited company owned a property.
The two directors (and also the shareholders) of the company entered into an oral
contract with a man.
Under the oral contract, the property would be sold to the man by transferring all the
shares of the company.
The contract was not performed and the man sued against the two directors and also
the company.
What were the issues in this case?
 Summary
What is the doctrine of separate legal entity?
What have we learned from the following case laws?
• Salomon v Salomon
• Macaura v Northern Assurance
• Lee v Lee’s Airfarming
• Good Profit Development Ltd v Leung Hoi
Why do we need the doctrine of separate legal entity?
The End