A Tale of Unintended Consequence

TY - JOUR

T1 - A Tale of Unintended Consequence

T2 - corporate membership in early UK company law

AU - Mackie, Colin

N1 - Acknowledgements Many thanks, with the usual disclaimer as to errors and omissions, to the editorial board and anonymous referee for their comments on earlier drafts of this article. An earlier draft of this article was presented at a seminar held at the Centre for Corporate and Commercial Law (3CL) at the University of Cambridge on 27 October 2015.

PY - 2017/2/1

Y1 - 2017/2/1

N2 - This article seeks to elucidate the historical basis in UK company law of the right for one company to be a member (i.e. shareholder) of another company and, through this position, benefit from limited liability. The contemporary relevance of this study lies in better understanding the original rationale behind conferring limited liability upon corporate members. Their own members may have already benefited from it. The protection afforded by this doctrine can, of course, be used strategically by a parent company to minimise losses arising from its subsidiary’s activities. It is argued that the courts found corporate membership to be compatible with the Companies Act 1862 in the late 1860s to ensure that the companies in question bore legal responsibility for shares which they held or were held on their behalf. This prevented them from disclaiming liabilities associated with the shares by contending that their very ownership was, in fact, unlawful. Importantly, the courts neither acknowledged nor considered whether corporate members could or, indeed, should benefit from limited liability. Whilst companies’ legislation, when read alongside this formative jurisprudence, would later be taken to confer limited liability upon corporate members, this was an unintended consequence of the early case-law and the 1862 Act itself.

AB - This article seeks to elucidate the historical basis in UK company law of the right for one company to be a member (i.e. shareholder) of another company and, through this position, benefit from limited liability. The contemporary relevance of this study lies in better understanding the original rationale behind conferring limited liability upon corporate members. Their own members may have already benefited from it. The protection afforded by this doctrine can, of course, be used strategically by a parent company to minimise losses arising from its subsidiary’s activities. It is argued that the courts found corporate membership to be compatible with the Companies Act 1862 in the late 1860s to ensure that the companies in question bore legal responsibility for shares which they held or were held on their behalf. This prevented them from disclaiming liabilities associated with the shares by contending that their very ownership was, in fact, unlawful. Importantly, the courts neither acknowledged nor considered whether corporate members could or, indeed, should benefit from limited liability. Whilst companies’ legislation, when read alongside this formative jurisprudence, would later be taken to confer limited liability upon corporate members, this was an unintended consequence of the early case-law and the 1862 Act itself.

KW - limited liability

KW - ultra vires

KW - corporate member

KW - corporate groups

KW - corporate structure

KW - separate legal personality

U2 - 10.1080/14735970.2016.1209803

DO - 10.1080/14735970.2016.1209803

M3 - Article

VL - 17

SP - 1

EP - 37

JO - Journal of Corporate Law Studies

JF - Journal of Corporate Law Studies

SN - 1473-5970

IS - 1

ER -