| Legal Principle
Salomon v.Salomon & Co Ltd  AC 22; Maclaine Watson & Co Ltd v International Tin Council 1989
| * A company is a legal entity separate and distinct from its shareholders and it not an agent of those shareholders * Lord Macnaghten pointed out that in an earlier case: Re Baglan Hall Colliery Co 1870 Giffard LJ had said that it was “the policy of the Companies Act” to enable business people to incorporate their businesses and so avoid incurring further personal liability.
| The facts of this case were that the owner of a business sold it to a company he had formed, in return for fully paid-up shares to himself and members of his family, and secured debentures. When the company went into liquidation, the owner, because of the ownership of the debentures, won his claim to be paid off in priority to other creditors, as the secured debt ranked at a higher priority to those debts and successfully proved that he did not have to indemnify the company in respect of its debts, as it had a separate legal personality.
| "The company is at law a different person altogether from the subscribers to the memorandum; and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by the Act."
| The Albazero 1977
| Each subsidiary company being a separate distinct entity and not the agent of its controlling or sole shareholder, its parent company.
| Ord v Belhaven Pubs Ltd 1998
| Thus a subsidiary company is entitled to expect that the court will apply the Salomon pricinple in the ordinary way and respect the separate identity of each company in the group.This is so even if the subsidiary company has a small paid up capital and a board of directors all or most of whom are also directors or executives of the parent company .
| Re Polly Peck International Plc (No3) 1996 – Per Walker J
| Despite a subsidiary company having negligible capital, no separate management and the most minimal role in certain bond issues, the court did not accept that it was an agent of its parent company.
| Gramophone & Typewriter Co Ltd v Stanley 1908
| HoL confirmed that a company is not, per se, the agent of its shareholders
| shares in a German company was owned by an English company. At issue was whether the business of the German company was really the business of its English shareholder since, if it was, that exposed the shareholder to a greater tax liability. Given that there was factual evidence that the German company was a real company with a real business,
| Buckley LJ said that the question became one of whether the German company was really the agent of the English shareholder. But he said it was well established that the holding of all of the shares does not establish the relationship of principal and agent between a shareholder and the company. There was no agency relationship and the business was the business of the Germany company) unless...
| Pegler v Graven 1952
| There is clear evidence to show that the company was in fact acting as an agent in a particular transaction or series of transactions.
| Smith,Stone & Knight Ltd v Birmingham Corp 1939
| In this case, at issue was the compensation for compulsory purchase payable by a local authority when the property of a subsidiary company was acquired. To maximise the compensation payable, the parent company on this occasion was happy to argue that the subsidiary carried on business as agent for the parent.
| ATKINSON J stated that whether there is an agency relationship is a question of fact in each case and it depends whether the subsidiary is carrying on the business as the parent company’s or as its own (Yukong...
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