Introduction

• This case deals with the concept of separate legal entity.
• The case clarifies that a company is a legal entity distinct from its members including the shareholders, directors, promoters etc.
  • Additionally, it is conferred with rights and is subject to certain duties and obligations.

Facts

• In this case, Mr. Lee (appellant’s husband) formed the company named Lee Air Farming Limited.
• He was the sole director and owner of the company.
• The share capital of the company was 3000 Euros with each share having a value of 1 Euro.
  • Lee held 2999 shares in the company and the remaining 1 share was held by his wife, who was also the nominee of the company.
• The Company had been insured under the New Zealand Workmen’s Compensation Act, 1923 for compensation in case of any personal injury.
• While working as a pilot, Mr. Lee met with an accident and lost his life, his widow claimed the compensation under the Act as her husband was died while in the course of his employment.
• The Court of appeal of New Zealand held that the widow was not entitled to get compensation because Lee was the owner of all except one share of the company and hence could not be treated as a worker.

Issues Involved

• Whether Lee and the company would be treated as separate entities?
• Whether his widow is entitled to get compensation under the Act of 1923?

Observations

• This judgement is very important with respect to both the United Kingdom’s and India’s Company Law as it lays down the precedent that company is separate legal entity, and it can enter into a contract with its own members.
• The Court relied on the Salomon v. Salomon & Co. Ltd (1897) and observed that Mr. Lee and the company are altogether different people.
• The Court further said Mr. Lee and the company had entered a contractual relationship under which Lee became the chief pilot.
• Mr. Lee died as a pilot working in the course of the employment and the relation between Mr. Lee and the company was that of servant and master.

Conclusion

• The Court held that there was a contractual relationship between lee and the company, and the sole governing director was held to be separate from the company.
• The compensation was held to be payable to the widow.

Notes

A company is a separate legal entity having its own identity which is independent from its members. A company as a legal entity can own property, can sue and be sued in its own name. It enjoys perpetual succession.