Company Legal Entity. Essay

6604 words - 26 pages

The notion of separate legal entity and limited liability first created by the case Salomon v. Salomon & Co Ltd [1897] AC 22 had generated debates on whether an artificially formed entity should be granted the rights analogous to a natural person and, more importantly, permit those who own and control it to be immune from liability.I evaluate and discuss the legal position regarding the above statement with reference to the Corporations Act 2001 and relevant cases.Introduction.1. The decision of the House of Lords in Salomon v Salomon & Co Ltd evinces the accuracy of Gooley's observation that the separate legal entity doctrine was a "two-edged sword".[2] At a general level, it was a good decision. By establishing that corporations are separate legalentities, Salomon's case endowed the company with all the requisiteattributes with which to become the powerhouse of capitalism. At aparticular level, however, it was a bad decision. By extending thebenefits of incorporation to small private enterprises, Salomon's casehas promoted fraud and the evasion of legal obligations. Nonetheless,this article will argue that the overall balance is positive.Salomon v Salomon.2. At its most general level, the decision of the House of Lords inSalomon v Salomon & Co Ltd was a good decision. Salomon's case isuniversally recognised as authority for the principle that acorporation is a separate legal entity.[3]3. The case firmly established that upon incorporation, a new andseparate artificial entity comes into existence. At law, a corporationis a distinct person with its own personality separate from andindependent of the persons who formed it, who invest money in it, andwho direct and manage its operations.[4] It follows that the rightsand duties of a corporation are not the rights and duties of itsdirectors or members who are, most of the time, obscured by acorporate veil surrounding the company.[5]4. The recognition that a corporation is a separate legal entity in itsown right is the foundation of modern corporate law: MacLaine Watson &Co Ltd v Department of Trade and Industry.[6] Indeed "[e]very systemof law that has attained a certain degree of maturity seems compelledby the ever increasing complexity of human affairs to create personswho are not men...".[7] Consistent with this observation, Arnoldstates that "[o]ne of the essential and central notions which give ourindustrial feudalism logical symmetry is the personification of greatindustrial enterprise."[8]5. Support for the principle of the separateness of legal personality,shared amongst academic commentators, has been unbroken in legislativeand judicial circles. Notably, this principle is enshrined in section124 of the Corporations Act. Similarly, the judiciary has, with minorexceptions, consistently reaffirmed the need to treat this legaldoctrine seriously.[9] Subsequent English and Australian judicialdecisions have upheld the Salomon principle.[10] In other words, sincethe decision in...

Find Another Essay On Company Legal Entity.

Characteristics of a Corporation Essay

926 words - 4 pages corporation holds, not the personal property of the owners. Furthermore, because the corporation is a legal entity, the company is not affected by the death, incapacity, or withdrawal of an owner (Needles, Powers and Crosson, 2005).Generating capital and transferring ownership is also easier for a corporation. A lending agency looks at the credit history and rating of the corporation, not the owners, when making lending decisions. The corporation

law assignment

980 words - 4 pages Question1: "The fundamental attribute of corporate personality is that company is a legal entity distinct from the members.'' Elucidate the statement. Also specify the important features of a company.Answer: In the Eye of Court, Company is an independent identity. It is an artificial person. There is no body, soul or brain but it works like a human being. It can buy and sell on its own name. No members have right on company except their invested

Strategic HR Management

1673 words - 7 pages help a business to achieve its objectives before the end of the financial period. A strategy can also be a ploy. The main reason why most businesses are set up is to make a profit. Whether it is a sole proprietorship business, partnership or a limited company, they all have one aim of making profits. A business entity can employ a ploy that can help in beating the opponent or a competitor. A good strategy must be implemented in the right way to

Advantages and Disadvantages ofSole Proprietorship

628 words - 3 pages the highest amount of liability in comparison to any other entity structure. My recommendation for the best legal structure for Jim Dandy’s business is limited liability company. A limited liability company is a hybrid entity structure that would combine the tax advantages of Jim Dandy’s sole proprietorship with the limited liability advantages of a corporation. For federal income tax purposes, under the limited liability company structure


828 words - 3 pages (limited liability) Important terminology Definition Liability Types of business structure Incorporated The process companies go through in order to become a separate legal entity from the owner/s. Limited liability Private Pty. Ltd. company Public Ltd. company Unincorporated The business entity and the owner are regarded as one and the same Unlimited liability Sole Trader Partnership Some additional notes:&bull

A company symbol or logo was developed by a consultant at a cost of $250,000. How should this transaction be recorded and reported?

807 words - 3 pages similar to those used to account for property, plant and equipment. Those intangibles which are purchased by an entity are recorded initially at their cost (ex GST) (Hoggett, Edwards, Medlin 2006).A Company Logo can prove to be as a future economic benefit to the company. It is with the help of the company logo that a company is represented as a brand name. Without a company logo, a product cannot exist in the market and the company cannot get any

Piercing the Veil

2295 words - 10 pages piercing the corporate veil. The Balancing Approach: The majority in Cape Pacific stated that a court does not have the power to simply disregard the company’s separate legal personality whenever it feels that it is just to do so; but rather strive to give effect to the principle of a company’s separate legal entity. The preservation of the separate legal personality of a company would need to be balanced against policy considerations in

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

Caru Coetzee

1031 words - 5 pages companies are considered a single economic entity and therefore liable for the debts of the other companies in the group. If the companies in a group were considered separate legal entities, the other member companies would have no liability towards the creditors of the insolvent subsidiary company. Thus, it is of vital important to determine when members of a group of companies constitute separate legal entities, even though they are members of a

Variance in Entity Formation and Exculpatory Clauses

1934 words - 8 pages RESEARCH SECTION: The complicated business and legal environment in the global market that exists today requires careful analysis of all aspects of the potential business/investment. For a potential business owner, simply choosing which ownership entity requires both legal advice and tax advice to ensure you are not opening your company up to unnecessary liability or negative tax implications. The unique characteristics

Business analysis

583 words - 2 pages accounting involves estimations of future incomes when long-term contracts are signed (Pavel & Encontro, 2012). Enron reported revenue in company statements although the money was not yet received. Skilling would hide financial losses and other operations. Also, the company would create an asset and immediately claim it as a profit. Another factor is the use of special purpose entities. A special purpose entity is a legal entity created only to

Similar Essays

Legal Capacity Of Foreign Citizens Essay

1595 words - 7 pages consortiums that give loans, consortiums for tendering and so on. We distinguish two major types of consortiums: 1) Temporary consortiums that are subdivided into public and private. 2) Long-term consortiums. Another popular form of international business organization that makes up the legal entity is a joint venture company. Such legal entity belongs to a certain country jurisdiction, normally, the country where the legal entity has been

Disadvantages Of Forming A Corporation Essay

575 words - 2 pages corporation can only satisfy claims against the personal property that the corporation holds, not the personal property of the owners. Furthermore, because the corporation is a legal entity, the company is not affected by the death, incapacity, or withdrawal of an owner (Needles, Powers and Crosson, 2005).Generating capital and transferring ownership is also easier for a corporation. A lending agency looks at the credit history and rating of the

Salomon V Salomon & Co Ltd

931 words - 4 pages Salomon should be liable for all debts of Salomon Co Ltd. The House of Lords stated that Salomon and his company are two separate persons under the corporation process. No matter how good or bad the business is, it was still managed by Salomon. Although Salomon owned majority issued shares of the company, the court also recognized him as a separate person so the creditor cannot sue him as one entity. The principle of having Separate Legal

Orgainsation Business Law Essay

1090 words - 4 pages corporate veil be lifted?Relevant Statute and case lawS 15 Companies Act 1993 states the company has separate legal personality - a company is a legal entity in its own right separate from its shareholders and continues in existence until it is removed from the New Zealand register.Case: Salomon v Salomon and Co Ltd [1897]Lee v Lee's Air Farming Ltd [1961]R v McCurdy [1983]Re Grasslands Farms Ltd [1975]Coleman v Myers [1977]Re Securitibank Ltd (No