Companies As Separate Legal Entity

(Salmon Vs Salmon Case Study)Matti UR Rehman

Fa12-BBA-058

OutlineBackgroundForms of BusinessWhat Is Company?Company As Separate Legal EntityConclusion

BackgroundThe idea of separate legal entity was originated

from the case named as Salmon Vs Salmon.The facts in this case disclosed that a company had

been incorporated by Mr. Salomon in which he and members of his family were the only shareholders.

The issue arises when the company’s business turns to be a failure.

The value of the assets was insufficient to pay out both Mr. Salomon and the company’s other creditors.

...continuedAt that time the statement of affairs’ was like

this:Assets : $ 6000Liabilities:

Saloman as debenture holder $ 10,000  Unsecured creditors $ 7,000

The unsecured creditors claimed a priority over the debenture holder on the ground that company and Saloman were one and the same person and the company was a mere agent in the eyes of law.

...continuedThe House of Lords held that the existence

of a company is quite independent and distinct from its members and that the assets of the company must be utilized in payment of the debentures first in priority to unsecured creditors.

Forms of BusinessThe three main forms of business are

Sole traderPartnershipCompany

A major disadvantage for sole traders and partners is that they have unlimited liability for the debts of their business.

What is Company?According to the 1862 Act, Company is a separate

legal entity as distinct from its members; therefore it is separate at law from its shareholders, directors, promoters etc. Companies lives and does its activities at its own

existences It is treated in its own capacity It does the business It generates the revenue It can incur losses, It hires the employees and It pays its own taxes

Company As Separate Legal EntityThe effects of separate legal entity are:

It has perpetual existence, despite changes of its members and constitution.

It can own property of any kind, and thus buy and sell property in its own name.

It can be a party to a contract. It can sue and be sued in its own name.Limited liability.Transferability and transmissibility of shares.

ConclusionSaloman’s case established new boundaries

that in law a registered company is an entity distinct from its members, even if the person hold all the shares in the company.

There is no difference in principle between a company consisting of only two shareholders and a company consisting of two hundred members, In each case the company is a Separate Legal Entity.

ReferencesCompany Law, Available at

http://mycompanylaw.blogspot.com/2013/06/case-iii-salomon-v-salomon-co-ltd-1897.html

A company is a separate legal entity as distinct from its members, Available at http://www.lawteacher.net/business-law/essays/separate-legal-entity-as-distinct-from-its-members-business-law-essay.php

Separate Legal Entity, Available at http://accountant4me.com/sep_entity.html

Separate legal entity, Available at http://www.drukker.co.uk/publications/reference/separate-legal-entity/

Separate Legal Entity (Law 346), Available at http://graguraman1.blogspot.com/2010/07/separate-legal-entity-law-346.html