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Question
- Explain the Salomon v A Salomon And Co Ltd [1897] AC 22 case. How is this case incorporated in the Corporations Act 2001 (Cth)?
- Discuss the legal basis of the statement using a corporate entity as an example
- Explain the future of the legal principle detailed in Salomon's case and whether you think changes are necessary in the current law
Solution
'The recognition that a corporation is a separate legal entity in its own right is the foundation of modern corporate law'
In order to evaluate the given statement, it is very necessary to first evaluate the leading case of the (Salomon v A Salomon And Co Ltd , [1897] ) which is the foundation case that established the principle of Separate Legal Entity.
The Separate Legal Entity concept submits a legal scenario of business veil which submits that the company has its own personality which is distinct from its member, the owners and shareholders. A company has its own independent identity and is segregated from its officers with the help of a corporate veil. Thus, the rights and liabilities of the company are its own and the shareholders of the company cannot be held personally liable for the same (Pickering, 1968) and are only liable to the extent of their shareholding (Ireland, 1984). Thus, a company is an artificial person who has the capacity of raising dents, buying and selling properties, makes investments, etc. (Teacher, 2018)
Salomon v A Salomon and Co Ltd [1897] AC 22
The principle of Separate Legal Entity is one of the robust rules of the corporate jurisprudence. However, the principle of Separate Legal Entity has faced much unrest compared with any other legal principles. The Separate Legal Entity was evaluated in Salomon v Salomon and is now necessary to be analyzed. (Radin, 1932)
Facts of the case
Salmon was engaged in the business of boot making as a sole proprietor. He transferred his business to Salomon Ltd (A company). The company is formulated by his family which comprises of Salomon, his wife and his sons. Salomon took shares and debentures as the price for the business and had security over the assets of the company against the debt. Upon liquidation, Salmon being the secured creditors cleared his claims compared with the unsecured creditors.
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