The main issue in the questionÃ¯Â¿Â½ entails a discussion relates to corporate entity or personality. As noted a key feature of the company is that is a legal person with a separate existence from the company's membersÃ¯Â¿Â½ or its directors. It is an artificial person in the eye of law that exist independently and separate from any other entity associated with the company. As a consequences a company can enter into contracts with its own shareholdersÃ¯Â¿Â½ and own property in its own right. Beside that, a company can sue and be sued and taxed in its own nameÃ¯Â¿Â½ and it can hold its own property and is actually liable for its own debts. This idea refers to the fact that the shareholders hold limited liability, and therefore, is not liable for the debts that belong to the company.
The decision of House of Lord's in the case of Salomon V A Salomon & Co LtdÃ¯Â¿Â½, which now referred to as the 'Salomon' principle established this principal of separate identity of the companyÃ¯Â¿Â½.
Aron Salomon and his boot and shoe business have done for company law what Mrs. Carlill and her smoke ball done for the law of contract and what Mrs. Donoghue and her adulterated ginger beer done for the law of tort.
The case of SalomonÃ¯Â¿Â½ is a case, which puts in a good view of how corporate personality and limited liabilityÃ¯Â¿Â½ closely connected to each other. In the case of SalomonÃ¯Â¿Â½, because of the formation of a new company Mr. Salomon was no longer liable for the debts of the company. Nevertheless, he became the managing director of the company. It granted himself a secured charge over all the company's assets.
Thus, if the company failed, not only would Mr. Salomon have no liability for the debts of...