Seperate Legal Entity Salamon Case

Topics: Corporation, Types of business entity, Company Pages: 1 (327 words) Published: August 21, 2012
Question 1
A corporation is a separate legal entity from its owners. The principle of separate legal entity is a fundamental of company law, and is demonstrated by SS119 and 124 of the Corporations Act. In other words, if a corporation, in the course of doing business, is involved in any legal action, then the corporation, for legal purposes, is its own person. The corporation is liable for its debts, not the members; members do not have the proprietary interest in the company assets. This is how corporations may sue and be sued, and their assets are tracked separately. If a corporation is sued, then the owners will not have their personal belongings at risk unless those belongings were purchased with illegal returns from the corporation. From 1897, The Salomon’s Case (1897) AC 22 was authority for the legal principle that an incorporated company is a separate legal entity from its founder, shareholders, directors and agents. The court in this case held that the company is legally incorporated it must be treated like any other independent person with its rights and liabilities appropriate to itself. From this case, many legal ramifications has been put forward: distinction between private and company debts, distinction between private and company assets and the company can contract with its members and be liable in tort to a member. In addition, a company has the power to do the followings: own and dispose of property and other assets, enter into contracts and sue or be sued.  House of Lords held that the company was a different legal person from the shareholders, and thus Mr Salomon, as a shareholder and creditor, was totally separate in law from the company A Salomon & Co Ltd. The result was that Mr Salomon was entitled to be repaid the debt as the first secured creditor. In this case, Mr Salomon was the major shareholder, a director, an employee and a creditor of the company he created.
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