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Solomon V Solomon

The decision in Salomon v Salomon & Co Ltd established that a corporation is a separate legal entity from its shareholders. This was a generally positive decision as it allowed corporations to become the driving force of capitalism by taking on the attributes of a legal person. However, it also enabled small private businesses to incorporate, which has promoted some fraud and avoidance of legal obligations. Overall, the benefits of recognizing the separate legal personality of corporations, including the ability to enter contracts, own property, and limit shareholder liability, outweigh the disadvantages.

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520 views2 pages

Solomon V Solomon

The decision in Salomon v Salomon & Co Ltd established that a corporation is a separate legal entity from its shareholders. This was a generally positive decision as it allowed corporations to become the driving force of capitalism by taking on the attributes of a legal person. However, it also enabled small private businesses to incorporate, which has promoted some fraud and avoidance of legal obligations. Overall, the benefits of recognizing the separate legal personality of corporations, including the ability to enter contracts, own property, and limit shareholder liability, outweigh the disadvantages.

Uploaded by

YAKUBU ISSAHAKU SAID
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction

1. The decision of the House of Lords in Salomon v Salomon & Co Ltd [1] 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 authoritive
affirmation for the principle that a corporation is a separate legal entity.[3] The significant
of the
The case firmly established that upon incorporation, there is a figurative or metaphorical veil
which conceals the incorporators from the corporation, (a new and separate artificial entity
comes into existence) and the curcumstances when the veil is lefted. The case also created legal
liability against the corporation instead of an individual person.
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 its
directors or members who are, most of the time, obscured by a corporate veil surrounding the
company.[5]
In line with the decision in Salomon's case, a registered company "is capable of performing all
the functions of a body corporate". In other words, the corporation is a legal entity distinct from
its members. This is the fundamental attribute or significants of corporate personality, from
which all the other practical consequences flow.[24]
First, as a separate legal person, a registered company is capable of suing and being sued:
Foss v Harbottle.[25]
Second, a corporation has perpetual succession: Regal (Hastings) Ltd v Gulliver.[26]
Third, a corporation can enter into contracts in its own name. sue and be sued.
Fourth, a corporation has power to acquire, hold and dispose of property: Macaura v
Northern Assurance Co Ltd. However, this statutory list of attributes is not exhaustive.
There are others.[27]

A corporation, for example, can contract with its controlling member (Lee v Lee's Air
Farming Ltd) and can be the debtor, creditor or surety of a member (Salomon's case).
Similarly, shares are transferable and transmissible. Likewise, corporations benefit from
tax minimising through income splitting (encouraged by dividend imputation): Hobart
Bridge Co Ltd v FCT.[28] Moreover, a corporation can enter into flexible financing
arrangements by creating a floating charge.
Finally, and "although it is not perhaps a logically necessary attribute of separate legal
personality in modern law",[29] the liability of a limited company is limited: Salomon's
case. A company is exclusively liable for obligations incurred on its behalf. Commercial
enterprises with limited liability characterise almost all developed legal systems.[30]

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