A Company Is A Separate Legal Entity

This essay will explain the concepts of separate personality and limited liability and their significance in company law. The principle of separate personality is defined in the Companies Act 2006(CA) ; “subscribers to the memorandum, together with such other persons as may from time to time become members of the company are a body corporate by the name contained in memorandum.” This essentially means that a company is a separate legal personality to its members and therefore can itself be sued and enter into contracts. This theory was birthed into company law through the case of Salomon v Salomon and Co LTD 1872. This case involved a company entering liquidation and the unsecured creditors not being able to claim assets to compensate them. The issue in this case was whether Mr Salomon owed the money or the company did. In the end, the House of Lords held that the company was not an agent of Mr Salomon and so the debts were that of the company thus creating the “corporate Veil” .

“Corporations are said to be “creatures of statute;” they exist because state laws allow human beings to organize themselves into entities that separate ownership and management functions as the outline above delineates. The business rule is there a presumption that making a business decision, the offices act in good faith with the belief that their actions is what is best for the company (Halbert/Ingulli, 2012 pg. 31).”

Owners are not personally responsible for debts the business may accumulate. The ownership of a limited company is divided up into equal parts called shares (Bbc.co.uk, 2014).

Here, the corporation want the law to acknowledge them as an individual, they want to have legal status and equal protections. Therefore, the corporations should have the same rights as natural persons. If there are any circumstances, they can sued and be sued by other parties in court. The corporations should have the equal protection and justice from the court which also apply to other people. As they also pay their taxes and even have their rules and regulation that should be followed like other people. If they violate the rules they can get penalty and be sued according to the law.

Creditors have tried to pierce through this concept of a company being a separate legal entity. However Courts are very reluctant to let them do so unless there is evidence of fraud or a sham.

Choosing a Corporation/Company Structure - the business structure of a company/ corporation is highly recommended, it has the flexibility to gain more capital, or credit capability and assets used as security. Based on the Corporation Act 2001 (Cth) AC 22, a corporation is another legal entity with their own legal rights, duties and responsibilities separate to the individual or owner of the company (Harris, Hargovan & Adams, 2013, pp 229). The risk and consequences are one of the principal considerations of choosing a company structure (Harris, Hargovan & Adams, pp 50). Based on the “Corporate Veil” Liability is owned by a separate legal entity and not to the extent of the owner, for instance, the debt of the company is not a personal liability, but the company. This is further explained in the case below.

One of the prevalent belief is that corporations were set up solely to maximize profit to shareholders. Unlike other business models, corporations have the sole status of being viewed as a ‘legal person’, with the rights similar to natural citizens including “engage in business and contracts, initiate lawsuits, and itself be sued” (Business Dictionary). This unique classification provides corporations with the rare opportunity to take advantage of the power corporations have to benefit society and the economy. One such example is the potential for companies to incorporate under a B-Corp (Benefit Corp) structure rather than as a C-Corp. The way that a companies structures itself can have significant implications on its corporate governance.

The company owns the assets of a company and it is liable for any debts incurred. This is why this type of business structure appear to be a high-risk business ventures.

An outsider should not be bound by any clause which will benefit himself, since the company’s objective of incorporation is money, avoiding any personal benefit. A company, after incorporation, becomes a separate legal entity. It is artificial without any physical presence, although it can be included in a variety of activities. However, as an artificial entity, the company is unable to do these activities itself, such us entering into contacts or take policy decisions. The company must appoint directors to ensure the job is done on behalf of the company, otherwise, the company cannot operate. To do that, the company should form a constitutional document which is called ‘article’. This essay will substantiate the view that, articles should

The legal principle on company law established by the case “Salomon v Salomon & Co Ltd” is that a company upon incorporation is a body corporate which is recognized by law to have a separate legal entity from its members and officers. The company and members are two separate bodies. This is known as the veil of incorporation. Thus, the debts of the company cannot be recovered from its members. For example, the debts of the company cannot be recovered from its member. Rather than the director or its member, a company is normally liable for any breach by itself. A company is an artificial legal person that exists independently of the individuals who at any given time are the members of the corporate body. In the case of Salomon V Salomon & Co Ltd, even though Salomon managed the business solely by himself, yet in law Salomon and the company is separate body as the company has incorporated.

The incorporated enterprises are recognized as legal persons who mean that these enterprises have a persona that is separate from that of its owners. Essentially, the personality of an incorporated company ensures that its liabilities do not extend to its owners unless in instances recognized by law. The rule on the legal personality of a company was laid in Salmon v. Salmon Co. Ltd , an English case in which the court held that the assets of a company are separate from those of the owner. To date, the rule has applied across the world and has been utterly beneficial in modeling the current business environment. However, some contentions have emerged with regards to companies that operate at an international level. Known as multinational

When the case went to court, even though it was plain to see that Mr.

As the rapid development of the business, Today, the company law is increasingly becoming important to protect companies’ right and regular their behaviors in the business activities. The company is particularly set up for the purpose of concerning companies and other business organizations regarding sole proprietorship, limited liability companies, unlimited liability companies, etc. According to Black’s Law Dictionary,‘a company is an association of persons interested in a common objective for industrial undertaking or other legitimate business’. Moreover, modern companies are the most profitable organizations than other forms of organization, which it highlights the importance of a complete law system. Basically, modern companies are

The question whether a company has a separate and independent legal personality was dealt with in the case of Salomon v A Salomon and Co Ltd [1897] AC 22. Where one of the unsecured creditors wanted their debt is prioritized over Mr. Solomon who was a secured creditor and a director of the company. They argued that Solomon and the company were same persons, therefore, the debts of the company should be the liability of Solomon. The court in rejecting their argument held that after a company is incorporated, it acquires its own legal personality that is separate and distinct from its members. Therefore, Solomon a secured creditor was prioritized in recovering of

Corporation origin from the Latin word Corpus which means body. It is formed by a group of people and has separate rights and liability from those individual. In any means, corporation exists independently from its owner and this principle is called the doctrine of separate personality. Doctrine of separate personality is the basic and fundamental principle in a Company Law. This principle outline the legal relationship between company and its members. Company’s assets belong to the company not the shareholders as assets are the equity for creditors. Company must use up all its assets to pay off the creditors if it became insolvent. The same applies to the corporation’s debts. For limited liabilities company, the shareholder liability is limited which means that the shareholder is restricted to the number of shares they paid and not personally liable for the corporation’s debts. If the company does not have enough equity to pay off debts, the creditors cannot come after the shareholders. However, limited liability company can be very powerful when in hands who do fraud and on defeating creditors’ claims. Courts then can ignore the doctrine for exception cases and lifting the corporate veil. Lifting the corporate veil is a situation where courts put aside limited liability and hold a corporation’s shareholders or directors personally liable for the corporation’s debts.