...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 members or its directors. The second view is that the court will disregard the corporate status when the court puts into consideration the surrounding circumstances and fact regarding the members, directors, other companies in the same group when deciding a case concerning a company. An absolute privilege of separate legal personality opens the floodgates to all types of abuses by directors and shareholders who use companies as a guise for protection from personal liability and exceptions by the court and legislature to this principle does not threaten to destroy the foundation on which company law has rested but rather to ensure that this foundation is respected and not abused. See the case of H L Bolton (Engineering) Co Ltd v T J Graham and sons Ltd where at the first and second instance the court pointed out that “…the state of mind of these managers is the state of mind of the company and is treated by law as such”. Even though the Salomon’s case was in 1897 but it is still as valid case in Australia and also in many parts of the common law world until today. Separate legal personality Introduction [1] The idea of a company is that it has a separate legal personality to its members or directors. Legal personality of law is recognised both in English and Indian law. add example. You should not treat any information in this essay as being authoritative. When pay the attention on the concept of separate legal personality, it articulates that, once the company is incorporated; in once sense that company is distinct from it’s members, directors, shareholders creditors and promoters. This separate legal personality concept was first recognised by courts in case law in the famous case named Salomon v A Salomon & Co Ltd, decided in 1897. The doctrine of separate legal personality divorces the rights, liabilities and asset-ownership of a company from that of its shareholders. INTRODUCTION The concept of a separate legal entity is the guiding principle that Company Law has been based on. Mayson e tal 2009 pointed out that the use of a wider view helps in determining the liability and obligations of a company through the acts of human beings. Posted in Artificial intelligence Technology and innovation. Copyright © 2003 - 2021 - LawTeacher is a trading name of All Answers Ltd, a company registered in England and Wales. This is confirmed by section 19(2) of the Act which states that a person is not, solely, by reason of being an incorporator, shareholder or director of a company, liable for any liabilities or obligations of the company, except to the extent that the Act or the Memorandum of Incorporation provides otherwise. The ‘separate entity’ doctrine (that the company is an entity separate t… It was then discovered that the sum of £39m had gone missing and £20m was traced to a company owned by the defendant where the court pierced the veil and found out that the defendant company was a mere facade owned by the former managing director of the claimant company who had only created the company to create the illusion of separate legal personality. Firstly, separate legal personality and limited liability. However, the case of Cape Pacific Limited v Lubner Controlling Company is known as the leading case in our common law with regards to this remedy and provides a number of general principles which guide the court in an application to pierce the corporate veil. The business is no longer owned by a natural person but rather a legal person. Even though a legal person is a legal concept, it does have its own legal personality and can acquire rights and incur obligations which are separate from those of the Directors and Shareholders. This is the first time in our law that there has been statutory recognition of the remedy to pierce the corporate veil of a company. Mr Salomon owned 20,001from the 20,007 shares of the company with the remaining 6 shared equally amongst his wife and children. Separate Legal Personality Concept developed in Company Law, relating to the legal status between a Company Limited by Shares and its owners. The rule emanating from the renowned case of Salomon v Salomon Co Ltd1 is merely a byproduct of the doctrine of separate legal personality. See also the case of Brown v Director of Public Prosecution where the court held the manager director of a publishing company who was not involved in the editing personally liable for the contravention of the provision of section 4 of the sexual Offences (Amendment) Act 1967 by the company. The stricto sensu rule emanating from the case is that upon incorporation companies have a ‘separate legal personality’ which acts as a ‘corporate veil’ protecting the persons operating and running the company from liability. … However as I shall be pointing out in the course of this essay certain exceptional situations have developed over time through statutory and judicial decisions where the court will disregard the corporate status and go after natural person(s). The pervasive Companies who act in conformity with the law and who do not abuse the privilege of separate legal personality are under no threat from the development of exceptions to this principle and the safeguards that have been put in place by the courts and the legislature have ensured that the solid foundation on which company law has rested is not threatened. In the case of Re a Company the defendant had set up companies in order to put away assets so as to conceal the fact that he was capable of meeting his liability to the plaintiff. A legal or juristic person cannot perform acts which are human in nature, for example, entering into a marriage or becoming a guardian for a minor. Separate Legal Personality refers to the concept that shareholders and directors take no responsibility for any liabilities arising as a result of companiesâ action. The case of Salomon v Salomon (supra) established that an agency relationship cannot exist between a company and its shareholders however in some rare situation an agency relationship may be imputed into a relationship between a company and the shareholders as was decided in the case of Gramophone & Typewriter Ltd v Stanley however this relationship in most cases will arise between a parent company and its subsidiary. See the case of Jones v Hellard where the chief executive of a company was held liable for including the title fellow of the Royal Institute of British Architects (FRIBA) after his membership expired. A corporation is an artificial person in law distinct from its members (Shareholders and employees) with the power to sue and be sued, enter into legal and contractual relationships, acquire property etc. does not have a legal personality separate from each of its individual partners (whether those partners are individuals or companies). The Principle was first accepted in Salomon v Salomon, a landmark case which is often considered to have established one of the most important principles within Company Law; A Company is a distinct legal personality from that of its owners. This indicates a high threshold that must be proved in order for the court to disregard the separate legal personality of a company. The common law remedy of piercing the veil has not always been consistent in our law with regards to when exactly the courts will resort to piercing the corporate veil but it is clear from case law that the courts will not resort to this remedy easily and the court will look for some kind of abuse of separate legal personality. It will be a different ball game if the act had been done for their personal interest. It can be said that metaphorically, once a company has been formed, a veil is drawn between the company and its shareholders and directors, which separates the company from its shareholders and directors and protects them from liability for the debts and wrongful acts of the company. A related doctrine is the doctrine of limited liability. [3] Legal personality is a prerequisite to legal capacity, the ability of any legal person to amend (enter into, transfer, etc.) This was decided in the case of Morphitis v Bernasconi. More often than not attributing the act of natural person as the act of a company is required to be done by person in actual authority for example the directors and managers of a company. Corporate personality and limited liability are closely linked. The principle of separate corporate personality has been firmly established in the common law since the decision in the case of Salomon v Salomon & Co Ltd[1], whereby a corporation has a separate legal personality, rights and obligations totally distinct from those of its shareholders. Additionally, it refers to how upon incorporation, companies are considered separate legal entity from its members with the legal capacity to own assets and liabilities. Consequently, the course of action for the company’s creditors is limited only to the company itself, and not its shareholders or even directors. In Foss v Harbottle, the Court upheld the principle of separate legal personality and held that in the event that the company is involved in legal proceedings, it must be initiated in the name of the company, and not in the name of the shareholders or directors as it is the company, which exists as its own legal person, itself being sued or suing. Contrast these two cases with the case of Adams v Cape Industries plc where the court held that a certain subsidiary company in the United States was not an agent of the parent company in the United Kingdom as both companies did not have an agency relationship. Contrast this with case of Ord v Belhaven Pubs Ltd where the court argued that where there is no sufficient evidence to pierce a company’s veil if will refrain from doing such. Where the intents do not seem genuine the court will not hesitate to lift the veil and go after the defendant or the person who has acted suspiciously or fraudulently. It is a legal person with its own legal personality separate from that of its shareholders or directors. – OWN legal existence, independent from owners and members. This combination “ ended the separate legal personality of the European Community: from now on there would be only one legally recognised organisation (the “European Union”) with a single legal personality ”. Separate legal personality also entails recognizing that the company is as a wholly separate person having its own rights and obligations. See the Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd(supra). (a) have legal personality separate from that of its members; and (b) continue in existence until it is removed from the register. It states that the Company has its own distinct Legal personality separate from its members. Further effects of a company possessing separate legal personality, include: A. Artificial personality, juridical personality, or juristic personality is the characteristic of a non-living entity regarded by law to have the status of personhood.. A juridical or artificial person (Latin: persona ficta; also juristic person) has a legal name and has certain rights, protections, privileges, responsibilities, and liabilities in law, similar to those of a natural person. As stated by BusinessDictionary.com, a separate legal entity is a business that is given its own individual legal status. This is usually done by forming a limited liability company or a corporation so that the company's actions may be legally declared as separate from those of an individual person, the company's shareholders or another company. Class 2 - Separate Legal Personality Limited Liability [4.10] The nexus between corporate personality and limited liability - while distinct conceptually the two notions are functionally related.In business, corporate personality has the function of marking out a pool of … Separate legal personality affords greater protection for shareholders and directors in the sense that they cannot be held liable for the debts and liabilities which belong to the company. The phrase ‘directing mind and will’ has become the most significant basis for relating the acts of a natural person acting on behalf of a company as the act of the company. *You can also browse our support articles here >, where there is an intent to defraud the creditors of the company, where there is an intent to defraud creditors of any person, where the fraudulent act is done to a customer(s) of the company. See also the case of Re H and others (restraint order: realisable property) where the court held the asset of a company as asset of the owners and not the company. However the principle of separate legal personality comes with it some vagueness especially when one looks at the exceptions which come with the principle. The court affirmed that importance of separate legal personality as a cornerstone in our law and the fact that this should not be disregarded lightly and that where there is fraud or abuse present, the court is required to perform a balancing act between the need to uphold separate legal personality, in the interests of the commercial world, with the need of remedying the harm that has been caused by the abuse of this privilege. Looking for a flexible role? There are, however, exceptions to this principle wherein the court may justifiably disregard and make rulings contrary to this principle. The court held in this case that the parent company as a matter of law and fact owned the business and profit of the subsidiary company as the subsidiary was a mere legal entity operating on its behalf. where there is an intent to defraud creditors of any person. A corporation is distinguished by reference to different kinds of things which the law selects for personification. 178 Campground Road, Newlands, Cape Town, 7708, South Africa. It is clear from this that the concept of separate legal personality has important legal consequences for a company incorporated in terms of the Companies Act, particularly with regards to debts and liabilities of the company and lies the foundation for company law. 11 This would indeed put an end to the long story of ambiguity and internal contradiction which we have described above. There is no doubt that the decision in Salomon’s case established the separate legal personality of a company, allowing shareholders to carry on trading with minimal exposure to the risk of personal insolvency in the event of a collapse. Section 15(1) provides that upon registration a company must be given a certificate as proof of incorporation. To understand how it works, we need to take a brief historical excursion back to historic England and examine how and why the doctrine came to be. The court held that there was no closed listed of categories in which a court will pierce the corporate veil and that the court has no general discretion to disregard a company’s separate legal personality whenever it chooses to do so. See the case of Adams v Cape Industries plc (supra) where the court pointed out that it will refuse to “…accept as a matter of law that the court is entitled to lift the corporate veil as against a defendant company…in respect of particular future activities of the group…”. Separate legal personality and limited liability are arguably the two most fundamental characteristics of the business corporation. Separate legal personality….. As seen, the most practical effect of the separate legal personality is … So the short answer is "no": a partnership (in the legal sense) is not a separate legal entity. Your email address will not be published. In the case of Gilford Motors Co Ltd v Horne a director had been contracted to work for a company and one of the conditions was that he was not to operate a business similar to that of the claimant company. The doctrine of ‘separate legal personality’ is an essential principle of English company law and an intrinsic part of the act of incorporation. To export a reference to this article please select a referencing stye below: If you are the original writer of this essay and no longer wish to have your work published on LawTeacher.net then please: Our academic writing and marking services can help you! Its difference will be highlighted via reference to the facts of the case. See also the case of Director General of Fair Trading v Pioneer Concrete (UK) Ltd and the case of Bank of Credit and Commerce International SA where the court attributed the ‘directing mind and will’ to individuals who were not part of the directing body in order to prevent the directing mind and will of the company from escaping liability. What then is a corporation? The doctrine of separate Legal personality 1.1: Introduction A company under Company regulation or business regulation is expressly mentioned to as a "legal person"- as a subject of privileges and obligations that is adept of owning genuine house, going into agreements, and having the proficiency to litigate and be litigated in its own name. See also section 213 of the Insolvency Act 1986 which holds a person in a company personally liable for any act which is calculated in the course of employment to defraud creditors or for any other fraudulent purpose and may be so disqualified under section 10 of the Companies Directors Disqualification Act of 1986. See the case of Salomon v A. Salomon Ltd (supra). Another statute which pierces the veil of a company is the Inheritance Tax Act of 1984 which allows a natural person for the purpose of income tax relief in agricultural property hold the occupation of a property by the company controlled by him as occupation held by him [see sections 116, 117, 122 and 123 of the Inheritance Act of 1984]. We have seen how the principles of separate legal personality and limited liability sometimes result in circumstances that may seem favourable to the Company’s shareholders and detrimental to its creditors. 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