Company Law - Corporate Identity

Case Name | Legal Principle | Facts | Held | Salomon v.Salomon & Co Ltd [1897] AC 22; Maclaine Watson & Co Ltd v International Tin Council 1989 | * A company is a legal entity separate and distinct from its shareholders and it not an agent of those shareholders * Lord Macnaghten pointed out that in an earlier case: Re Baglan Hall Colliery Co 1870 Giffard LJ had said that it was “the policy of the Companies Act” to enable business people to incorporate their businesses and so avoid incurring further personal liability. | 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 company is at law a different person altogether from the subscribers to the memorandum; and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by the Act." | The Albazero 1977 | Each subsidiary company being a separate distinct entity and not the agent of its controlling or sole shareholder, its parent company. | | | Ord v Belhaven Pubs Ltd 1998 | Thus a subsidiary company is entitled to expect that the court will apply the Salomon pricinple in the ordinary way and respect the separate identity of each company in the group.This is so even if the subsidiary company has a small paid up capital