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Concept of Separate Legal Entity and Consequences of Corporate Personality on a Company

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  • November 2011
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SCHOOL OF MANAGEMENT
ACW 204
COMPANY LAW AND SECRETARIAL PRACTICES
YEAR 2010/2011
SEMESTER 1

Lecturer : Dr. Hazril Izwar Ibrahim
Name : Kok Cheng Hon
Matric No. : 105000

COMPANY LAW AND SECRETARIAL PRACTICES- ACW 203/204
INDIVIDUAL ASSIGNMENT
Discuss the concept of separate legal entity and consequences of corporate personality on a company; as part of the discussion present your opinion whether the judiciary can ignore the rule of separate corporate personality and how the said rule will affect group of companies.

Under the concept of separate legal entity, a company will becomes a body corporate that exists separately with its owner and distinct from its individual members and directors. In others word, the corporation is an entity just like human being created using legal and official purpose.

A company once created by the law can only be destroyed by the process of law. The company exist in its own capacity and does business, generate revenues, incur losses, hire employees and pay for its own tax. It is better to recognize the company as a separate entity because the owners can enjoy the limited liability and risk based on their investment in stock. However, under this concept, the company is treated in its own capacity. It is not human, not a machine, and it cannot operate by itself. Therefore, it must need a group of people of different capacity to manage it ethically and represent it in theirs vested authorities.

The separate legal entity has its roots in the landmark case of the English House of Lord in Salomon v. A Salomon & Co Ltd. Aron Salomon is a leather merchant and wholesale boot manufacturer trading on his sole account. In year 1892, he decided to change his business to a limited company. The company purchase the business for £39,000 and £20,000 was being transferred into the business as fully paid shares. £10,000 was paid in debentures and £1,000 was received by Aron Salomon to discharge the debts and liabilities during...

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