Company Legal Entity.

Essay by sirfazizUniversity, Bachelor'sA+, September 2005

download word file, 27 pages 5.0

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.


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 legal

entities, Salomon's case endowed the company with all the requisite

attributes with which to become the powerhouse of capitalism. At a

particular level, however, it was a bad decision.

By extending the

benefits of incorporation to small private enterprises, Salomon's case

has 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 in

Salomon v Salomon & Co Ltd was a good decision. Salomon's case is

universally recognised as authority for the principle that a

corporation is a separate legal entity.[3]

3. The case firmly established that upon incorporation, a new and

separate artificial entity comes into existence. At law, a corporation

is a distinct person with its own personality separate from and

independent of the persons who formed it, who invest money in it, and

who direct and manage its operations.[4] It follows that the rights

and duties of a corporation are not the rights and duties of...