Question 2 a) Discuss the concept of limited liability in company law. [10marks] b) What are the advantages under the Companies Act (Chapter 24:03) of operating a business through a private company instead of a public one? [10marks] c) Explain the rationale behind the regulatory requirements of a company's name. [5marks] Total 25 marks a) "The company is at law a different person altogether from the subscribers __ 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" per Lord McNaughten at p.51 in Salomon v Salomon & Co Ltd j1897] AC 22 (HL) Assess the validity of the above assertion with reference to decided cases and the Companies Act (Chapter 24:03 [10 marks] b) Discuss the concept of piercing the corporate veil. [15 marks]

a) Limited liability is a fundamental concept in company law that refers to the limited financial responsibility of shareholders or members of a company. According to this principle, the liability of shareholders is limited to the amount they have invested in the company. This means that shareholders are not personally liable for the debts or liabilities of the company beyond their investment. The concept of limited liability is designed to encourage entrepreneurship and investment by protecting shareholders from unlimited personal liability.<br /><br />b) The advantages of operating a business through a private company instead of a public one under the Companies Act (Chapter 24:03) include:<br /><br />1. Limited Liability: Private companies offer limited liability protection to their shareholders, shielding them from personal liability for the company's debts and obligations.<br /><br />2. Privacy and Confidentiality: Private companies are not required to disclose their financial information to the public, providing a level of privacy and confidentiality that is not available to public companies.<br /><br />3. Flexibility in Management: Private companies have more flexibility in terms of management and decision-making processes compared to public companies, as they are not subject to the same level of regulatory scrutiny.<br /><br />4. Easier and Cheaper to Form: Private companies are generally easier and less expensive to form compared to public companies, as they have fewer regulatory requirements and lower administrative costs.<br /><br />c) The rationale behind the regulatory requirements of a company's name is to ensure that company names are unique and distinguishable from one another. This helps prevent confusion and ensures that consumers can easily identify and distinguish between different companies. Additionally, the regulatory requirements for company names help maintain the integrity and reputation of the business community by preventing the use of names that may be misleading or deceptive to consumers.<br /><br />d) The assertion made by Lord McNaughten in the Salomon v Salomon & Co Ltd case is generally valid under the Companies Act (Chapter 24:03). The act recognizes the separate legal personality of a company, meaning that the company is considered a distinct entity from its shareholders or members. This means that the company is responsible for its own debts and liabilities, and shareholders are not personally liable for the company's obligations beyond their investment. However, there are exceptions to this rule, such as in cases where the company is a sham or a mere facade for the personal activities of its shareholders, where the court may pierce the corporate veil and hold the shareholders personally liable.<br /><br />e) Piercing the corporate veil is a legal concept that allows courts to hold shareholders or directors personally liable for the debts and obligations of a company in certain circumstances. This usually occurs when the company is found to be a sham or a facade for the personal activities of its shareholders or directors, or when the company is used for fraudulent or illegal purposes. When the corporate veil is pierced, the court disregards the separate legal personality of the company and holds the shareholders or directors personally responsible for the company's debts and liabilities. This is a rare and exceptional remedy, and courts are cautious in invoking it to avoid undermining the principle of limited liability, which is a fundamental aspect of company law.