Salmon V Salmon
29. Introduction
30. The decision of the House of Lords in Salomon v Salomon & Co Ltd [1] evinces the accuracy of Gooley's observation that the separate legal entity doctrine was a "two-edged sword".[2] At a general level, it was a good decision. By establishing that corporations are separate legal entities, Salomon's case endowed the company with all the requisite attributes with which to become the powerhouse of capitalism. At a particular level, however, it was a bad decision. By extending the benefits of incorporation to small private enterprises, Salomon's case has promoted fraud and the evasion of legal obligations. Nonetheless, this article will argue that the overall balance is positive. Salomon v Salomon
31. At its most general level, the decision of the House of Lords in Salomon v Salomon & Co Ltd was a good decision. Salomon's case is universally recognised as authority for the principle that a corporation is a separate legal entity.[3]
32. The case firmly established that upon incorporation, a new and separate artificial entity comes into existence. At law, a corporation is a distinct person with its own personality separate from and independent of the persons who formed it, who invest money in it, and who direct and manage its operations.[4] It follows that the rights and duties of a corporation are not the rights and duties of its directors or members who are, most of the time, obscured by a corporate veil surrounding the company.[5]
33. The recognition that a corporation is a separate legal entity in its own right is the foundation of modern corporate law: MacLaine Watson & Co Ltd v Department of Trade and Industry.[6] Indeed "[e]very system of law that has attained a certain degree of maturity seems compelled by the ever increasing complexity of human affairs to create persons who are not men...".[7] Consistent with this observation, Arnold states that "[o]ne of the essential and central notions which give our industrial feudalism logical
30. The decision of the House of Lords in Salomon v Salomon & Co Ltd [1] evinces the accuracy of Gooley's observation that the separate legal entity doctrine was a "two-edged sword".[2] At a general level, it was a good decision. By establishing that corporations are separate legal entities, Salomon's case endowed the company with all the requisite attributes with which to become the powerhouse of capitalism. At a particular level, however, it was a bad decision. By extending the benefits of incorporation to small private enterprises, Salomon's case has promoted fraud and the evasion of legal obligations. Nonetheless, this article will argue that the overall balance is positive. Salomon v Salomon
31. At its most general level, the decision of the House of Lords in Salomon v Salomon & Co Ltd was a good decision. Salomon's case is universally recognised as authority for the principle that a corporation is a separate legal entity.[3]
32. The case firmly established that upon incorporation, a new and separate artificial entity comes into existence. At law, a corporation is a distinct person with its own personality separate from and independent of the persons who formed it, who invest money in it, and who direct and manage its operations.[4] It follows that the rights and duties of a corporation are not the rights and duties of its directors or members who are, most of the time, obscured by a corporate veil surrounding the company.[5]
33. The recognition that a corporation is a separate legal entity in its own right is the foundation of modern corporate law: MacLaine Watson & Co Ltd v Department of Trade and Industry.[6] Indeed "[e]very system of law that has attained a certain degree of maturity seems compelled by the ever increasing complexity of human affairs to create persons who are not men...".[7] Consistent with this observation, Arnold states that "[o]ne of the essential and central notions which give our industrial feudalism logical