Your client wants to know why how his company can enter into contracts with outsiders when...

Your client wants to know why how his company can enter into contracts with outsiders when it is an artificial entity.

Explain to your client how companies exercise their legal capacity and powers, use examples to demonstrate?

Expert Solution

When a company is incorporated, it is recognised by the law as an artificial entity comprising that it is a legal person that exists independently with its liabilities and rights. This simply means that the company has to be treated as a seperate person from all of its participants and is managed by atleast one director and owned by atleast one shareholder.

Considering the above statement, the company has the right to exercise their legal powers and capacity provided within the section 19(5) that is it has the capability of suing and can be sued as well.

It also has a perpetual succession means it will continue to operate and perform activities as the business owner is treated different from that of the company and thus, exercise powers to hold. Company's legal capacity is determined by the provisions provided in the company's memorandum of association, impact of the relevant statutory provisions and the operations of the doctrine of ultra vires which provides a company a certain power to exercise its duties.

For example to understand this concept better, we can take any example of a cooperation having its shareholders within a company. Knowing the cooperation is working and earning profit for its owners or shareholders let's day, the tax that is being deducted from the profit is charged seperately from the company and seperately from the shareholders. That means, the if the company is earning $100,000 profit and 10% divided is to be distributed to all shareholders, the tax would be deducted from the both the profit of the company and then what shareholders are earning. This is because of the reason the government considered the company seperate and a legal entity from its owners having its own name. The company also has its own signatures and funds to be sued and sue anyone.

keosha answered 4 months ago

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