Separate Legal Personality of Companies

The assignment provides a detailed analysis of the concept of separate legal personality in companies, as established by Salomon v. Salomon. It explains that once a company is incorporated, it becomes a distinct entity from its shareholders, with its own rights and liabilities. This concept has been followed diligently and has facilitated economic growth by allowing businesses to operate independently and take on contracts, sue, and be sued in their own name.

Running head: COMMERCIAL AND CORPORATION LAW
Commercial and Corporation Law
Name of the Student
Name of the University
Author note

1COMMERCIAL AND CORPORATION LAW
Question 1:
Issue
The concern of the case is to determine whether an issue of a certificate of
incorporation a company will become a separate legal entity from its shareholders.
Rule
As per the Companies Act, 2006 a company is incorporated under this act and can become a
separate legal entity from its shareholders. When a company becomes registered under the
Companies Act, it becomes a separate legal entity. It is regarded as a separate entity from its
shareholders, directors and promoters at law. A legal person is considered as a being or entity
who has the ability to obtain enforceable legal rights and become subjected to enforceable
liabilities and legal obligations. These principles were drafted in clarity under the Companies
Act. The principles of the separate legal personality of a company are a significant part of the
company law as observed. There are consequences of a separate legal entity. Since an
individual is separated from the members, the organization itself charges the business and
enters into contracts. A separate legal entity is a company has the right to transfer and create
contracts in its own name. If one of the shareholders forms a company, the company has the
power to employ him under a contract of employment. Therefore, that person such a person
would be playing the role of a shareholder, employee and a director of the company
simultaneously. Thereafter, if the principle of separate legal personality is applied then it
would be a one hand company and in another way one person in three functions. It describes
the link between the entities of the company and guarantees that are correlated rights such as
compensation. In the case of Solomon v Solomon & Co Ltd 1897 AC22, it introduced the
concept of a separate legal entity personality of a company. In the said case, Mr. Solomon
can be distinguished entirely from the company. A separate legal entity and the liability of the

2COMMERCIAL AND CORPORATION LAW
members are limited by shares and guarantee (Bainbridge 2015). According to the
Companies Act, when a company acquires its own property the shareholders does not have
any direct rights to the company. They cannot exercise any power or rights on the company
being the shareholder. This instance was proved in the case of Macaura v Northern
Assurance Co 1925 AC619. In this particular case, Mascaura had shifted timber from his
estate to his company and extracted the insurance particularly with his own name instead of
the name of the company. Thereafter, the timber was ruined in a fire. In the matter of Battle v
Irish Art Promotion Centre Limited [1968] IR 252, the Court had decided that while an
individual represents himself in the Court, a company can only be characterized by a lawyer.
The veil of corporation is involved in such cases. However, the veil of incorporation can have
a few circumstances. The Court can only be disregarded by the court depending on the
matter. The Companies Act discussed about the incorporated and unincorporated business.
As per law, incorporated business, which is also known as a corporation is a separate legal
entity from the owner of the business and it has natural rights (Dyllick & Muff 2016). On the
other hand, the unincorporated businesses are defined as the sole proprietor or the partnership
companies. A company resolution is treated as a corporate action that comes in form of a
legal document on which the board of directors can vote. Under the Companies Act, 2006 it
is defined as a formal method in which companies jot down the decisions made by the
company members in the meeting. However, under the Corporations Act, 2001 maximum
number of decisions that affect the needs of the company should be made by a resolution. As
per the Corporations Act, 2001 the major decisions that affect the company’s need to be made
by a resolution. Constitution of a company has its own set of rules in the constitution. For a
resolution to get passed it must go through the criteria process (Grayson & Hodges 2017).
The resolution is usually passed at a meeting. It puts the resolution in the records of the
company within one month of the meeting being held. However, three of these constituents

3COMMERCIAL AND CORPORATION LAW
are inter linked as without these three a company cannot be formed (Dhingra,, Anil Sarin and
Gill). Step by step each of the constituents should be fulfilled only then a registered company
can be created. Without filling the document of Memorandum the rest cannot be completed.
Therefore, it can be observed that the rate of risk is associated when the insurance is engaged.
However, limited liability and separate legal entity are not similar. The company itself is the
entity that holds and conducts the business, enters into contracts and has the power to sue and
get sued. In such a situation, the members cannot be sued. This is treated as a benefit for the
members of the company. The members will not be accused of being responsible for the
liabilities of the company because the company itself is a separate legal entity.
Application
It has been provided in the Companies Act 2006 that the separate legal personality of
a company is one of the most basic principle of company law. As observed in the case of
Solomon v Solomon, this principle defines the legal connection between the members and the
company. The moment the Registrar issues the certificate of incorporation, the organization
will come into existence with its personality of separate legal entity; it will continue to exist
indefinitely (Porter & Kramer 2019). Therefore, from that time onwards, a company will be
considered an independent person with its rights and liabilities that are appropriate to one. It
naturally becomes a separate entity from the shareholders after the process of incorporation.
In the matter of Cowan v Jeffrey Associates, this concept was applied and it followed the
rules of the Company Law. A company’s identity is separated from that of the shareholders.
As per the law, the company is a constratsting person from the subscribers to the
memorandum (Manchiraju & Rajgopal 2017). The company itself is the entity that holds and
conducts the business, enters into contracts and has the power to sue and get sued. In such a
situation, the members cannot be sued. This is treated as a benefit for the members of the
company. A company has three basic principles. Firstly, as per the law, the capacity

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of the company is prohibited to both by the general essentials of the
company and more because of the common law, to the actions that can
be both appropriate and lawful to the natural objectives. Secondly, within
the nature of its particular aims the company is bestowed with the legal
capacity for the proprietary, things related to contracts and other aims,
which is of the same nature as that possessed by natural persons of full
capacity. This capacity can clearly be separated from the people who
ultimately form the company’s membership (Veldman 2018). Thirdly, of its
both members and outsiders accord the company has a capacity of full
and independent procedural. From the amalgamation of the above
mentioned flow of the principles are all the famous practical
characteristics of separate legal entity. For instance, due to its separate
proprietary and other capacity the company can enjoy continuous
existence and its usefulness as an entity for purposes like keeping a check
that has given a legal foundation, and the possibility is opened to that of
its members may limit their liability. The members will not be held responsible for
the debts of the company because the company itself is a separate legal entity. Solomon v
Solomon proved that the organization was not considered as an agent of its shareholders. An
individual can become a shareholder in a company by obtaining shares but that person will
not be a part of the company. Law at one member limits the sole of the corporations at any
given time. Unincorporated businesses are generally the extensions of the owners. The
existence of the businesses varies on the existing span of the owners. As long as the owners
are alive, the business will exist. An incorporated business does not depend on the owners of
the business (Dyllick & Muff 2016). Therefore, an incorporate business can last for a lifetime
as it is not associated with the life span of the owners in the company. In unincorporated

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business, it gets tough to transfer the interest in the business to a third party. However,
owners of unincorporated businesses have the right and authority to share the assets of the
business. Incorporated businesses are claimed to be independent. The interest of an owner
can be shifted without any hassle and without affecting the business. Sole Proprietorship,
corporation, partnership, territorial incorporation falls under the different categories of
incorporated and unincorporated business organizations that exist. The sole of the
corporations are attached as an incident of an office. The owners of registered companies
does not restrict their liability to donate the amount to the company so that it can contribute
monetary sums to the company so that the company is able to pay the sum to third parties
(Benn, Dunphy & Griffiths 2014). Limited liability is also a choice that is available to the
incorporators of a registered company. The consequences of the concept of separate legal
entity can be applied in the cases once the company is incorporated. The main consequences
consist of the company debts and the difference between the private and company debts. The
debts are undertaken under the name of the company as well as not to the controller or the
director of the company.
Conclusion
After observing the cases and going through the legal concept, it can be concluded by
stating that once the certificate of incorporation of a company is issued, it naturally becomes
a separate legal entity from its shareholders. As it is analysed from the above discussion,
possible considerations can be done. At first, the separate legal personality Salomon v
Salomon has been followed diligently. This has been implied that if during the initial of
twenty century there were a few companies and more partnership, it is true to the contrary
(Conway & Kavanagh 2015). It forecasts the situation and facts that it has replied to both to
the political will and social needs. On contrary to this, it has facilitated the development and
growth of economy, and it has granted to provide the prospect for everyone to be part of

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economy without being associated in any kind of liability except to the extent of her or his
investment. This has assumed and implied that the company as a separate legal personality
carries on its business, owns the property, enters into the contracts and has the power of suing
and being sued but not the members of the company.
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