LAW 202 : Company Law PDF

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Contents
Essay...........................................................................................................................................................2
“The recognition that a corporation is a separate legal entity in its own right is the foundation of modern
corporate law”.............................................................................................................................................2
Introduction.................................................................................................................................................2
Separtae legal entity....................................................................................................................................2
Salomon v A Salomon and Co Ltd [1897] AC 22.......................................................................................2
The Relevant facts...................................................................................................................................2
The Relevant Issue..................................................................................................................................2
Judgment.................................................................................................................................................3
Scope of section 124 – Separate legal existence..........................................................................................3
Lee v Lee's Air Farming Limited 1961 AC 12........................................................................................3
Farrar v Farrars Ltd., (1888) 40 ChD 395................................................................................................3
Lifting the corporate veil of the corporation................................................................................................3
Salmon case – Future of the foundational rule.............................................................................................4
Variation to the current law.........................................................................................................................4
Bibliography................................................................................................................................................5

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Essay
“The recognition that a corporation is a separate legal entity in its own right is the foundation of
modern corporate law”
Introduction
The recognition that a corporation is a separate legal entity in its own right is the foundation of
modern corporate law is a statement which has two aspects, firstly, as how the corporation was
considered as a separate legal entity in law and secondly, how the said principle is regarded as
the foundation of the modern corporate law.
The firstly question requires an analysis of the leading case law of Salomon v A Salomon And Co
Ltd [1897] which is considered as the foundation of recognizing that a corporation is the entity
which has its own existence and has a separate legal personality in law. The second question is
analyzed by looking into case laws that are decided by the courts post Salomon v A Salomon And
Co Ltd, which are decided by taking the decison of saloman as its precedent and thus is
considered as the foundation of the modern corporate law. (Gobson and Fraser 2013)
Before evaluating the facts and the decisions that took place in Salomon v A Salomon And Co
Ltd [1897], it is first important to understand the basic meaning of Separte legal entity in law.
Separtae legal entity
The concept of Separate legal entity in simple words submits that the corporation which is
registered as per the law of the land has a distinct personality in the law in the sense that the act
that are taken by the officers on behalf of the corporation are in the name of the corporation only
and the officers are not held to be personally liable for the same. This distinction that is bought
amid the corporation itself and the officers of the company including shareholders is mainly
because of the shield/veil that is present and which is one of the significant features that are
attained by the entity upon incorporation of the business. (Latimer 2012)
Hence, a corporation is an entity which has its own existence and has the significant feature of
separate legal entity. It is now relevant that a brief understanung on the legal case of Salomon v
A Salomon And Co Ltd [1897] must be taken.
Salomon v A Salomon and Co Ltd [1897] AC 22
The leading case of Salomon v A Salomon And Co Ltd [1897], is the foundation stone which has
laid down the significant principle of separte legal entity in law. It has established that once a
company is registered and incorporated, it is then considered as the separat legal person in law
and has the capacity to carry out all the acts of a natural person and thus is capable to enter into
contracts, hold property, etc. But, this is the principle which has suffered much controversy on its
existence in modern world. However, it is first important ti understand the factual scenarios of
the leading case. (Bottomley 2016)
The Relevant facts
Salomon was a sole proprietor and is carrying on the trade of boot manufacturing. A company is
incorporated by him in the name of Salomon And Co Ltd and he transferred his buisness to the
company. The shares of the company are held by him, his sons and wife. Saloman is also
holding debentures adnd shares in the company which were secured in nature against the
company assets. When the company went into liquidation, the secured creditors are paid leaving
the unsecured crediors with nothing to pay. (Bottomley 2016)
The Relevant Issue
The main issue that was raised was whether the company was nothing but is formulated to cheat
the unsecured creditors. Whether the company and Salomon to be treated as one or distinct in
nature?