The doctrine of separate legal entity

Topics: Business law, Legal entities, Corporation Pages: 5 (1358 words) Published: October 16, 2013
Unit 5.5: The Separate Entity Doctrine
“It is a basic doctrine of company law: that for certain purposes a company is a legal entity separate from the legal persons who became associated for its formation or who are now its members and directors. For certain purposes, there is a corporate screen around the members and directors. This is often referred as to the ‘Veil of Incorporation.’ The authority for that proposition is the leading case of Salomon v Salomon & Co Ltd [1897] AC 22.

The corporate veil shields the members and the directors from the liabilities of the company. The separate entity doctrine applies to one person company.
There are limits to the separate entity doctrine:-
Examples under the Companies Act 2001:
Section 162 imposes a duty on the board of directors to consider the appointment of a liquidator where the company is unable to pay its debts.
S 162. Duty of directors on insolvency
1. A director of a company who believes that the company is unable to pay its debts as they fall due shall forthwith call a meeting of the Board to consider whether the Board should appoint a liquidator or an administrator. 2. Where a meeting is called under this section, the Board shall consider whether to appoint a liquidator or an administrator, or to carry on the business of the company

3. Where -
a. a director fails to comply with subsection (1):
b. at the time of that failure the company was unable to pay its debts as they fell due; and
c. the company is subsequently placed in liquidation, the Court may, on the application of the liquidator or of a creditor of the company, make an order that the director shall be liable for the whole or any part of any loss suffered by creditors of the company as a result of the company continuing to trade. 4. Where -

a. at a meeting called under this section the Board does not resolve to appoint a liquidator or an administrator;
b. at the time of the meeting there were no reasonable Grounds for believing that the company was able to pay its debts as they fell due; and c. the company is subsequently placed in liquidation,

the Court may, on the application of the liquidator or of a creditor of the company, make an order that the directors, other than those directors who attended the meeting and voted in favour of appointing a liquidator or an administrator, shall be liable for the whole or any part of any loss suffered by creditors of the company as a result of the company continuing to trade.

Duty owed by director to the company → Section 162.
If the company is subsequently placed in liquidation, the Court on application by a liquidator or creditor, may order that directors (other than those who voted in favour of appointing a liquidator) will be liable.

Unless at the time of the meeting, there were no reasonable grounds for believing that the company was able to pay its debts as they fell due.

Unit 5.12: Suggested readings
• Business Law by James Marson (26 May 2011)
• Business Law by David Kelly, Ruth Hayward, Ruby Hammer and John Hendy (29 Mar 2011)
• Business Law by Ewan MacIntyre (3 Feb 2010)
• Contract Law by Catherine Elliott and Frances Quinn, Jun 2011

http://www.businessdictionary.com/definition/separate-legal-entity.html

DefinitionSave to FavoritesSee Examples
A legal entity, typically a business, that is defined as detached from another business or individual with respect to accountability. A separate legal entity may be set up in the case of a corporation or a limited liability company, to separate the actions of the entity from those of the individual or other company.

Read more: http://www.businessdictionary.com/definition/separate-legal-entity.html#ixzz2haFivqql

http://www.studymode.com/essays/Company-As-a-Separate-Legal-Entity-1170914.html COMPANY AS A SEPARATE LEGAL ENTITY

Definition:
A legal entity, typically a business, that is defined as detached from another business or individual with...
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