The main issue relates to corporate entity or personality, a company being a legal entity independent of its members, can enter into contracts and own property in its own right, can sue and be sued and also taxed in its own name. The principle of corporate entity was established in the case of Salomon v A. Salomon , now referred to as the ‘Salomon’ principle.
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 House of Lords affirmed this principle, and stated that the company was also
Is this essay helpful? Join OPPapers to read more and access more than 650,000 just like it! get better grades not to be regarded as an agent of the owner, as stated by Lord Macnaughten in the House of Lords as The company is at law a different person altogether from the subscribers to the memorandum and the company is not in law the agent of the subscribers or a trustee for them. There are occasions when it seems that the Salomon principle may be unfair, and then the courts are under pressure to review the principle and make decisions contrary to it upon various grounds. This is termed as ‘piercing the corporate veil’.
Instances where the Salomon principle has been set aside by statute include section 30(3) of the Landlord and Tenant Act 1954, which states that where a landlord has a controlling interest in a company, the business of the company can be treated as a business carried on by the landlord, instead of two separate legal entities. This...