Company Law

Topics: Corporation, Corporations law, Legal entities Pages: 6 (2049 words) Published: April 10, 2013
The issue here is whether john could prevail in court by alleging the he was breach the contract with Diamond Car Sales, does he should stop his trading. This essay will apply law theory and precedent cases to distinguish john case. The principle of corporate entity was established in the case of Salomon v A. Salomon, now referred to as the 'Salomon' principle Legal

The House of Lords’ decision in Salomon v A Salomon & Co Ltd [1897] established the separate identity of the company. Salomon v A Salomon & Co Ltd [1897] AC 22 is a landmark UK company law case. The effect of the Lords' unanimous ruling was to uphold firmly the rule of corporate personality, as set out in the Companies Act 1862, so that creditors of an insolvent company could not sue the company's shareholders to pay up outstanding debts. Mr Salomon had a boot manufacturing business which he decided to incorporate into a private limited company. His sons wanted to become business partners, so he turned the business into a limited company, A Salomon & Co Ltd. His wife and five children became subscribers, and took his payment by shares and a debenture or debt of £10,000. Mr Salomon owned 20,001 shares, and his wife and five children owned one share each. The price fixed by the contract for the sale of the business to the company was £39,000.Some years later the company went into liquidation, and Mr Salomon claimed to be entitled to be paid first as a secured debenture holder. The liquidator and the other creditors objected to this, claiming that it was unfair for the person who formed and ran the company to get paid first. However, the 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. It is quite common in Ireland for one person to have such a variety of roles and still be a different legal entity from the company. The rule of separate legal personality comprises of two elements. Firstly, a company’s property belongs to it and not to its directors and secondly, a company is responsible for its own debts and liabilities ( This means that shareholders and directors are not responsible for paying a company’s creditors back in the event that it becomes insolvent. This principle was established in Salomon v Salomon & Co Ltd. Salomon v A Salomon & Co Ltd is an example of one –Person Company where one shareholder holds all of the shares and in consequence can dominate company meeting as well as taking, The veil at work – post Salomon case

In the decades since Salomon's case, various exceptional circumstances have been delineated, both by legislatures and the judiciary, in England and elsewhere(including Ireland) when courts can legitimately disregard a company's separate legal personality, such as where crime or fraud has been committed. It should not be ignored that in many cases the corporate veil has not been pierced and judges have emphasised the sacrosanct nature of the Salomon principle. The often cited case Macaura v Northern Assurance Co Ltd [1925] AC 619 is an example of that. Mr Macaura was the sole owner of a company he had set up to grow timber. He owned an estate and insured its timber. He transferred the estate and timber to a company in exchange for shares in that company but the insurance policy was not put into the company’s name, the timber was subsequently destroyed by fire. Macaura's case is depending upon the fact that Company whether private or public is distinct from his owner if he took the policy from insurance company at the name of company then he could claim for damages. The House of Lords held that the timber was legally owned not by M but by the...

Bibliography: Gilford motors ltd v Horne (1933) All ER Rep 109
Jones v Lipman [1962] 1WLR 832
Andrew H, S.H. Goo 2001, Cases and Materials in Company Law, 7th Edition, Butterworth, Oxford University Press
Douglas.S, 1999, Company Law, 1st Edition, Butterworth- Heinemann, Linacre House, Jordan Hill, Oxford OX2 8DP, 223 Wildwood Avenue
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