The legal position regarding the notion of separate legal entity and limited liability.

Essay by essaysuckerUniversity, Master'sA-, September 2005

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Salomon's case is actually the beginning of company law as we understand it today. In Salomon's case, there were two main legal issues raised which hadn't been noticed before: whether an artificially formed entity been regarded as an independent entity like a nature person which can separate from the persons who really formed or/and controlled it, and whether the persons who formed or/and controlled the company can avoid the liabilities when conjunctures of the company occurs. Afterward, two important notions: separate legal entity and liability came into people's mind after they had pondered a lot from the case.

In Salomon's case, the House of Lords held that: once the company registered, it is running business itself, not Mr Salomon. The company is not legally the agent or trustee for its subscribers. As well as the subscribers are not as members liable. As today's s. 123(1) saying: "from the time of incorporation, the company is a separate legal entity from its subscribers, shareholders and directors."

To say it in straightway, a body corporate (such as a company) is a legal person. As such, it is as separate from its shareholders and officers as a man is from his parents and his brothers and sisters. Although "this artificial creation exists only in contemplation of the law, in the same way as Hamlet exists only on stage" (Roman Tomasic, 1992) it has, as a legal entity, its own separate legal existence; it can, for example, enter into contracts, own land, hold money, sue and be sued, and in each of these cases the right of the company are separate and distinct from the right of the shareholders and directors: see Lee v. Lee's Air Farming Ltd; Macaura v. Northern assurance Co Ltd. The Salomon's case has been already universally recognized as authority for...