WEEK 1

LEGAL PERSONALITY
LEARNING OUTCOMES:
Explain the concept ‘legal personality’.
Distinguish between incorporation and registration, and the
effect thereof on a company’s legal personality.
Discuss the legal status of a company after incorporation, but
before registration.
Describe the concept ‘limited liability’ and the practical
implications of separate legal personality.
Discuss the common law concept of ‘lifting the corporate veil’
with reference to case law and discuss the statutory adoption of
the common law concept of ‘lifting the corporate veil’.
Legal personality

• A company is a separate legal person

• S 8 (3) of Companies Act, 2008 says that no persons formed for
the purpose of the acquisition of gain will be recognised as a
legal person unless it is registered as a company under this Act
or formed in terms of another Act.
• Section 19(1)(c) of the Companies Act of 2008 states:
– “From the date and time that the incorporation of a company is
registered . . . the company – (a) is a juristic person. . .”
Legal personality

Separate legal personality has the following implications:

Shareholders enjoy limited liability – they are generally not liable for
Limited liability the debts of the company

Assets of the Belong to the company and not to its shareholders

company

Wrongs committed The company itself, and not its shareholders, must seek redress
against the company
Separate legal personality has the following
implications:
Limited liability- Shareholders enjoy limited liability – they are
generally not liable for the debts of the company. Their liability
limited to what they paid for their shares. As a general principle,
shareholders – not liable for debts of the co – see Airport Cold
Storage (Pty) Ltd v Ebrahim 2008 (2) SA 303 (C) para 6.
- S 19(2) – a person not solely liable for any liabilities or obligations
of the co by reason of being an incorporator, shareholder or director
of a company, except to the extent that the Act or the co’s MOI
provides otherwise.
- Shareholder enjoy limited liability, not necessarily the company. The
exception is the personal liability co where present and past directors
are jointly and severally liable, together with the co for any liabilities of
the co. incurred during their terms of office.
Legal personality (continued)
• The branches or divisions of a company are
part of the company itself and do not have
their own separate legal existence
• A legal person is an entity that can acquire
rights and duties separate from its members:
 Assets of the company are the exclusive property of
the company itself and not its shareholders. Airport
Cold Storage (Pty) Ltd v Ebrahim
 The property vests in the company and not in the
shareholders of the company. Dadoo Ltd v
Krugersdorp Municipal Council
 Once a company is legally incorporated, it must be
treated like any other independent person with its
rights and liabilities appropriated to it. Salomon v
Salomon & Co Ltd
Effect of incorporation and registration on legal
personality
Incorporation:
• Effected by the actions of the incorporators as provided for in s
13(1) of the Companies Act 71 of2008.
Registration:
• Effected by the Companies and Intellectual Property
Commission (“the commission”) after the act of incorporation
has been perfected (= filing of notice of incorporation) by the
incorporator.
• The commission will issue a registration certificate which is
conclusive evidence that all of the requirements for the
incorporation of the company have been complied with.
• S 19(1): ‘From the date and time that the incorporation of a
company is registered… the company – (a) is a juristic person
…’. This means that the date of registration is the date on which
the company comes into existence as a separate legal person.
• Prior to registration (even if incorporation has already been
completed), the company exists notionally but does not enjoy
legal personality.
Incorporation and limited liability
• “Limited Liability of shareholders” means that
shareholders will generally not be liable for the debts
of the company.
 Generally, incorporation (and therefore legal
personality) entails limited liability.
 HOWEVER certain companies can be incorporated and have
legal personality, but unlimited liability, for example, a
Personal Liability Company.
Practical implications of legal personality
• Incorporation generally means limited liability of shareholders
– i.e. Shareholders are not liable for the debts of the company.
• The assets of the company do not belong to its shareholders.
• Where the company is wronged, it is the company that must
seek redress, not the shareholders of the company.
Piercing the corporate veil (continued)
Originated in Common Law:
• Although incorporation can provide for the limitation of liability of those
persons behind the company, this principle may not be abused.
The concept of separate legal personality must not be abused
• A court may, in certain exceptional circumstances, ‘pierce’ or ‘lift’ the
corporate veil and hold the directors and / or members personally liable for
the debts of the company
‘Piercing the corporate veil’ refers to those exceptional
circumstances where the court ignores the separate legal
existence of the company and treats the shareholders as if they
were the owners of the assets and had conducted the business of
the company in their personal capacities OR attributes certain
rights or obligations of the shareholders to the company.
Circumstances when a court will pierce the
veil
• In Cape Pacific v Lubner Controlling Investments (Pty) Ltd 1995 (4) SA 790
(A) it was stated that a court will pierce the veil where a company is
misused in order to perpetrate fraud, or for a dishonest or improper
purpose.
• Generally, the court will pierce the veil where:
a) a company is used as a device to cover up or disguise fraudulent or illegal
conduct
b) a director and / or shareholder treats the company’s assets as his or her own
c) a statute empowers the court to ignore corporate legal personality
• Piercing the veil is a remedy of last resort
– Botha v Van Niekerk 1983 (3) SA 513 (W)
– Hülse Reutter v Gödde 2001 (4) SA 1336 (SCA).
Piercing the veil under the Companies Act
of 2008
• Section 20(9) of the Companies Act of 2008 provides that if on application
by an interested person or in any proceedings in which a company is
involved a court finds that:
– The incorporation of the company
– Any use of the company
– Any act by or on behalf of the company
• Constitutes an ‘unconscionable abuse of the juristic personality of the
company as a separate entity’ the court may:
a) Declare that the company is to deemed not to be a juristic person
b) Make any further order the court considers appropriate to give effect to such
declaration.
Companies and Other Business
Structures
Third Edition

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© Oxford University Press Southern Africa 2013
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