Understanding The Doctrine Of Separate Legal Personality In Company Law Is Crucial For Essay.

The Salomon's case

Question:

Discuss about the Principles Of Separate Legal Personality.

The separate legal personality is one of the basic terms of tenet where Company Law has been premised it helps the fundamental laws to establishes every legislation where a company owns the existence and functions. According to the study the rule of corporate jurisprudence in the case of Salomon V A Salomon And Co Ltd [1897] the court has establishes the principles of separate legal personality which has covered the universal commercial law of regime. The doctrine of separate legal entity has been analyzed in this case which has formed according to the company law and corporate theory.

The corporate theory has made several certain principles which are difficult to define due to the unsuitable for strict and permanent delineation for the formation of this law (Lim, 2014).

The fact of the case is Solomon who transferred his business of boat making where he runs the business as a sole proprietorship with the company of Solomon Limited which also incorporated property to the members who are himself along with his family. Salomon has transferred the business through the way of shares debentures which included floating charges which define the security against debts for the Assets of the company. However after sometime the business has been failed to corporate it and went into liquidation. Therefore Salomon’s rights for the recovery of floating charges has been claimed against the debentures which are unsecured creditors but it there was no recovered of such depths from the liquidation process (Waqas & Rehman, 2016).

Later in the elevation of unjust exclusion the liquidator who has appointed on the behalf of unsecured creditors make the charges of allegation where Solomon was found level for the dates for being the principal in this liquidation process. In which case it was also found the liquidator has overlooked the separate personality of the company Solomon Limited where Solomon itself the member of the company therefore it makes Solomon personally liable for such debt of the company and for being a sole trader of the business it also make the burden for him (Watson, 2015).

As per the case fact the issue has been arrival regarding the claims of the unsecured creditors in the liquidation process of the company Solomon Limited where Solomon itself holds the major part of shares and charged for the liability of the company’s Debt. Therefore the separate legal in identity of the company weather make liable for the debts where the shareholder holds the rights of sole trader and above the capital contribution the unlimited personal liability of being a member towards the company also holds any duties for payment of the debts of the company (Waqas & Rehman, 2016).

Legal Consequences of separate legal entity

The court of appeals has declared in the case of Solomon vs. Solomon and Co Limited that as Solomon was incorporated in the company contrary according to the true intent as per the Companies Act 1862 and the letter it was found to conduct it with the business as an agent of Solomon therefore he should be responsible for the Dept in curd for running the business which is also recognize as agency. The house of Lord according to the appeal over the ruling and anonymously held of the case proceeding where the company was found Incorporated and independent person with its rights and the liabilities which applied to him were the motives of the promotion of the company was completely found equivalent in describing the actual rights and liabilities therefore the corporate veil has been applied in this case between the company and its owners (Lim, 2014).

According to the separate legal personality which has been commenced in Solomon case has make some president relevant decisions has been taken from the cases of Macaura v Northern Assurance Co. 1925, Lee v Lee's Air Farming Limited and Farrar v Farrars Ltd., (1888) (Watson, 2015).

In the case of Murray A. Pickering, 'The Company as a Separate Legal Entity' (1968) it has been found that the corporate veil which has been established fair the legal personality separate and independent of a company is help to find the identify of their shareholders. therefore if any rights and obligations or liabilities has applicable for the company therefore the shareholders are also responsible for such capital contribution which is also recognized as limited liability the corporate fiction has been described according to the individuals to pursue the purpose of economic situation of the company where it will never be applicable out the risk or liabilities of the capacity of someone who is related to the company therefore when a company has their own property executive contracts raise debts make investments and run their business as per their rights and obligations it is completely present independent towards their members therefore companies has the right to sue and be sued on its own identity which should be applicable as per the facilities of legal courses most important the terms and conditions of separate real identity only applicable when a company survives on the date of its members (Waqas & Rehman, 2016).

According to the corporate act 2001 has legislated in the Section 124(1) where it describe that a company should have the legal capacity and on powers of an individual both in and outside of their jurisdiction which despite that the legal entity in business is completely separate from another business or any individual who wrote the of the value to accountability the corporation or a limited liability is also represent the example of a separate legal body because when Corporation found to tend to make the separation as per the action of the entity from such individual or any other company. Therefore a company owns the powers of controlling and corporate the whole business where they can issue and cancel shares of the company they also have right to make decision over the and issued shares of the company it also provides the powers to distribute any of the companies property towards the member of that company where it provide security by charging cancelled capital. The Section 124 one also described that a company should be registered or recognized as a corporation under the jurisdiction and also included the outside of the jurisdiction (Lim, 2014). According to the study the rule of corporate jurisprudence in the case of Salomon V A Salomon And Co Ltd [1897] the court has establishes the principles of separate legal personality which has covered the universal commercial law of regime. The doctrine of separate legal entity has been analyzed in this case which has formed according to the company law and corporate theory.

Relationship between a company and its shareholders

In the Solomon’s case case several legal consequences of separate legal entity has been found according to the company law when a company is formed and incorporated therefore they are bound to follow of the application of the separate identity principle though such legal consequences make distinction between private and company debts. It also make the distinction between legal entity of private and company assets where company is liable to contract with their members which includes employees, directors and other members who are related to the company (Waqas & Rehman, 2016).

When debts are being taken under the company’s name therefore it should be belongs to the company as well as maybe not the directly related with the shareholders or director or any other else. Therefore house of Lord has made a decision in this case where they mentioned that the debts and liabilities should be make the legal right to the company through the separate legal person but there should be some circumstances and in modern law it to have as modified by the statute law. According to the Corporation Act 2001 the section 588G and section 197 has defined the directors of a Trustee company or the directors itself reliable as per the circumstances of public policy where the corporate gifts should in card during the trading (Watson, 2015).

According to the case facts the assets which have been purchased on the name of company and the accounts from the company therefore it should be belong to the company. Those are never directly owned by the directors or any shareholders or any other member of the company though if any shares have been owned of 100% of the company. Therefore it will still belong to the company not to other persons all the members from the company. This only happened due to the separate legal entity. The company has right to owned the property in its own which has been mentioned in Section 124 of Corporation Act. Therefore it also described that company is legally owned with ownership rights which belongs to the property. These circumstances has been in one of the famous case Macaura v Northern Assurance Co Ltd (1925) where the court has found that the company has completely holds the property separately from the property of the members of the same company (Waqas & Rehman, 2016).

When company get there separate legal entity therefore they have all the rights to make or enter into any contractual relation with the shareholders the directors and others member who are related in the companies controlling member. This circumstance has been found to by the House of Lords in one of the famous case of Lee v Lee’s Air Farming Ltd (1961). In this case the court has proved the circumstances where the company has right to make a relationship or enter in an employment contract with Mr. Lee Lord Morrison who holds a major shareholder position in this company (Lim, 2014).

Employer's duty of care under a separate legal entity

Therefore it is important to discuss that and employer of a company who owns the position of separate legal entity holds various obligations where one is important to provide a safe system of work where it may never enter with any matter of the injured employees which could be a director of the controller of the company. The high court of Australia has been made a historical legislative decision in the Andar Transport Pty Ltd v Brambles Ltd (2004) where it has been illustrated that when the terms of introduction has arises between the legal principles in the Corporate law and the employer’s duty of care therefore under the employment law it is important for the company to provide a proper safe system of work for those employees and other members of the company (Watson, 2015).

In the Solomon’s case the English Court has found several situations which were permissible to disregard with the principles to Pierce the corporate veil which described by completely separate entity principles which found unfair. Therefore in such situation the court has right to make decisions which create quantity as per the principles on several grounds. Sometimes it has been found that the court do such act for reach the actual person who holds the duty of legal separate entity behind the veil and to find the actual true nature of the company. The court has right to described the corporate veil or lift the veil in the area of law has been ill-defined, inconsistent and quiet unpredictable according to the  law of Corporation.  In the case of Briggs v James Hardie & Co Pty Ltd the High Court has pointed out the consequences of common and unifying principles as per the decision of the court where it is necessary to lift or ignore the corporate veil due to the ill-defined, inconsistent and quiet unpredictable situation (Lim, 2014).

 Therefore it is necessary to determine the situation when the discrete of the separate entity principles or commentators has found to be divided from their instances into several categories and it should not have any concerts as per the type of categories and the similar cases which should be placed in the terms of corporate veil. It is also stated that the ultimate policy for lifting the veil should depend and applicable as per the policy regarding the justice which has been given by the court. It actually provide legal decision for define or give proper rights or duties to a company where they hold several obligations and liabilities towards their shareholders and it should be formed and applicable for the separate legal person who is solely completely responsible for such debts which in cards for the sole beneficiary of the credit by their own (Waqas & Rehman, 2016).

Conclusion

Therefore as per the decision in the Solomon’s case the separate legal personality of the corporation has been defined through the Companies Act but it is also described in the modern company legislations of Corporation Act where the separate legal personality towards the company which allowed the shareholders for carrying on trading with minimal exposes which are related to the risk of personal insolvency from the event of the collapse. In addition the exceptions of such principles of separate legal entity has also justified by the court where is this regards and make ruling contrary as per the principles of the company Act the court has also justified on the terms of leave the corporate veil where several views has been found and the principles which are followed in the court however the article 16 of the Companies Act 1997 has define such principles which has been followed in the company while processing the Solomon’s case in the court. Though it has become one of the most historical Landmark company case law in the UK and most of the time it is cited on the area of company law (Waqas & Rehman, 2016).

References

Andar Transport Pty Ltd v Brambles Ltd (2004) 206 ALR 387; (2004) HCA 28

Briggs v James Hardie & Co Pty Ltd & Co Pty Ltd (1989) 16 NSWLR 549

Farrar v Farrars Ltd., (1888) 40 ChD 395

Lee v Lee’s Air Farming Ltd (1961) AC12

Lee v Lee's Air Farming Limited 1961 AC 12

Lim, E. (2014). Of ‘Landmark’or ‘Leading’Cases: Salomon's Challenge. Journal of Law and Society, 41(4), 523-550.

Macaura v Northern Assurance Co Ltd (1925) AC 619

Macaura v Northern Assurance Co. 1925 AC 619

Murray A. Pickering, 'The Company as a Separate Legal Entity' (1968) 31 Mod. L. Rev. 481

Salomon V A Salomon And Co Ltd [1897] AC 22

Waqas, M., & Rehman, Z. (2016). Separate Legal Entity of Corporation: The Corporate Veil. International Journal of Social Sciences and Management, 3(1), 1-4.

Watson, S. (2015). Can Shareholders of a Company Override a Management Decision Made by the Board?: Attorney-General v Ririnui. Browser Download This Paper.