The Legal Position Regarding The Notion Of Separate Legal Entity And Limited Liability.

2250 words - 9 pages

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 the principle that a corporation is a separate legal entity.The Salomon principle has stood the test of time because it has meant that corporations do have practical utility. "As a separate legal entity subject to limited liability and defined by share transferability, perpetual existence, flexible financing methods, specialized management, majority rule and the other attributes or consequences of incorporation" (Simon Fisher, 1994), the corporation has many economically and socially beneficial functions.Suing or being sued:Firstly, as a separate legal person, a registered company is capable of suing and being sued: Foss v Harbottle. It may bring actions in the courts and have actions brought against it. As such, it has the normal rights attaching to a litigant in the courts: s. 1335 (1). There are numerous cases dealing with this section, which can be found in J. Delaney, Security for Costs (1989).Perpetual existence:Since a separate legal entity being set up (such as a company), it is like a new lease of life. It has its own personalities to be done by. That means a company doesn't have the problem of natural death, which we humans have. If a shareholder dies the company still has a legal...

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