The Doctrine of Separate Legal Personality

Introduction

The legal standing, based on the ‘separate legal personality’ doctrine was well developed in the case of Salomon v. Salomon & Co Ltd [1897] AC 22. However much this doctrine poses as a stone head of the common English company law, it is worth noting that courts introduced various exceptions that purposely undermined the veil of incorporation.

Clearly, the court acknowledged that Mr. Salomon and Salomon & Co Ltd posed as two different entities and as such, the redemption of significant debentures was regarded as a priority. Salomon’s case is a remarkable one, as it extended the principle of separate personality. As though the incorporation of a company has a similar nature, it has a different legal person, aside from its creators.

As a result of the impact of the doctrine as laid in the case of Salomon v Salomon, the lords stated that according to the law, the company is a different person from the shareholders and as though that may come to effect after incorporation, the business should be regarded as the same as it was before. Moreover, the same individuals are managers and they receive the profits accrued, and thus, accordingly in law, the company is not the agent of the shareholders or trustee and nor are the shareholders as members, making them liable in any form, except to an extent and in the manner that the Act provides.

It is then evident that Salomon’s case created a doctrine of separate legal entity as well as limited liability. In an instance where a company has been incorporated lawfully, the members enjoy significant limited liability regardless to several circumstances like the

numbers of the members and when a member is a director or an employee. The most significant impact of limited liability has been noted when the shareholders are never liable for debts as the company is regarded as a separate legal identity. However, in cases to do with bankruptcy, the personal assets of members are protected and inaccessible by the creditors of the company. It is then clear that the case of Salomon safeguarded the personal properties of the members and also offered members significant security as they can be earning from the company whilst they are protected.

However, it is evident that this protection that the courts offers to company members has over the years made the creditors of the company skeptical, in most cases as in the case of Salomon, where the company was used in defrauding the state, as well as the creditors. Notably, the courts had the obligation of balancing the protection of the shareholders and the injustices against various creditors. Of importance, the courts were required to be ready towards ignoring the doctrine of separate legal personality, as well as the lifting the veil of incorporation, especially in cases where the company has been incorporated, with an aim of defrauding. Continue your exploration of Legal Research Proposal Samples with our related content.

Conclusion

Overall, the case of Salomon v Salomon created the corporate vein in the English courts. It provided protection to company shareholders. However, the boundaries of this kind of security have gradually changed over many years. Courts have attempted to balance the shareholders’ protection and also the risk that company creditors are facing.

Bibliography

BBC, ’50 things that made the modern econmy: limited liability company’ (BBC Sounds, 24

G Morse and SFB Palmer, Palmer’s Company Law: Vol. 1. 1st supplement (22 nd edn, sweet & Maxwell 1976) Chapter 1.1 A Guide to companies legislation past and present

Lorraine Talbot, Critical company law (2nd edn, Routledge 2016) Chapters 1 & 2

R Harris, ‘The private origins of the private company: Britain 1862-1907’ (2013) 33(2) Oxford Jo of Legal Studies 339

RB Gratham, ‘The doctrinal basis of the rights of company shareholders’ (1998) Cambridge law review 554

Salomon v. A Salomon & Company Ltd [1897] AC 22

Continue your journey with our comprehensive guide to The Benefits of Teamwork in the Workplace.