Law Assessment - Solomon Ltd

Added on - 17 Feb 2021

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Law Assessment
Table of ContentsISSUES............................................................................................................................................1RULES:...........................................................................................................................................1APPLICATION..............................................................................................................................4CONCLUSION...............................................................................................................................6REFERENCES................................................................................................................................8
ISSUESCritical analysing the development of law regarding separate legal personality ofbusiness.RULES:Separate legal personality of an incorporated company:A company upon its valid registration gets a separate legal identity of its own distinctfrom its members and shareholders. It has its own rights, duties and obligation which it canexercise at any time and must abide with all responsibilities. It gets powers to be sues and cansue others as well. This means a company can file a lawsuit under its name and can be dredgedin cases by others. The property of business belongs to company and to its members.Shareholders holds shares of the organization but thy do not have any rights overs the assets offirm.Case laws:Solomon V/s Solomon :The case started with a lawsuit filed by the unsecured creditors of Solomon Ltd upon itsliquidation as they didn't get their dues to the company rather Mr. Solomon the owner of thecompany also a secured debenture holder got back his share of debenture money. In this case itwas held by the court that the owner and the company are two different persons. Both of themare not related with each other and posses separate identity in eyes of law. A business on itsincorporation becomes a legal person having its own identity which is separate from its ownersthe company have its own assets and properties along with liabilities1. The claim of creditors wasdismissed by the court on the fact that owner and company are distinct legal person in the eye oflaw.This case was foundation of the concept of separate legal entity and established aPrincipe of separate juristic personality of a corporation from which the legal structure of presenttime business has come into existence with getting a veil of incorporation over the companywhich distinguishes the company from its members and separate their obligations. Once abusiness is legally registered the corporate veil becomes more intact and unchallenged.Corporate veil on incorporation of a business:1Salomon v Salomon & Co.2018. [Online]. Available through :<http://www00.unibg.it/dati/corsi/65081/62134-Salomon%20v%20Salomon%20&%20Co.pdf>.1
With conceptualization of the distinct identity of the corporation and its members thecourse would not get behind this concept the directors, members and employees can not be heldliable for the acts of the company. This is termed as not piercing or lifting the corporate veil.This means that concept ofLifting of Corporate veil:The concept of serrate legal entity can not be held in absolute manner for a longer timesas not lifting the veil behind the company and its operation. With time it was recognized by thecourt and regulatory authorities that exception do this principle do exist2. The corporate veil ofseparate legal identity of a business need to be pierced in order to ascertain the actuality of thebusiness operation and to prevent abuse of the privilege and for significant case this concept isset asides with directors, members holding liable for the acts of their company. Lifting of theveil is not in contravention of the principle of separate legal personality. Rather, it is done todetermine that there was no fraud and agency and company is real one not a myth or fiction.The veil is pierced in three ways:1.Lifting the veil between controlling shareholders and company in order to determine theattribute characteristics which a company under the capacity of a non human can nothold.2.The veil between management and business can be lifted so that responsibility is shared.3.Veil is lifted between holding and subsidiary company in order to make the controllingcompany liable for the act of business which is being controlled.The reason of identifying members of a company by its members are:Corporate residence,Fraud,Avoidance of legal duty,Agency and;Single economic entityAgency:This rule defines that an organization generally a subsidiary company in thereality is an agent of the parent company. In this certain factors are determined to establish adirect link between the operation of subsidiary and holding company. These are, the profits ofthe subsidiary is treated as profits of the parent company. The managements of the controlled2Dahal, R., 2018. Salomon v Salomon: Its Impact on Modern Laws on Corporations.2
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