Entity Principle Case Study

The Separate Entity Principle is a fundamental principle of Company Law applied on a global basis. Pursuant to this principle, a company is treated as a distinct entity from its members. The separate entity rule pervades company law and has had wide reaching implications on theoretical and practical company law.

This essay is divided into two main parts. In the first part, we will discuss the concept of Separate Entity Principle, and evaluate the decision in Salomon case. In the second part we will analyze statutory exceptions to Separate Entity Principle and consider the circumstances in which and for the so-called ‘corporate veil' may be lifted or pierced by the court.

A Double-Edged Sword -- Separate Entity Principle

Separate Entity Principle

In accordance with the decision of the House in Salomon case, we can summarize four points follow from the proposition that incorporated companies have a separate legal personality: (a) Company's property is company's property; (b) Company's debt is company's debt; (c) Companies can contract with their members, directors and outsiders; (d) Companies can commit torts and

These solutions confirm that a company is able to employ one of its members under a contract of service including its principle shareholder.

Finally, Companies can commit torts and crimes. The decision in Lee v Lee's case demonstrates that companies may be liable to tort since companies have a separate legal personality and are able to contract with others.

In sum, the Salomon case is regarded as a landmark in the UK's Company Law since the Salomon case had established fundamental principles of Company Law. According to the Salomon case, a company is both an association of its members and a legal person separate from its members, “ a company's property is owned by the company as a separate person, not by the members; the company's business is conducted by the company as a separate person, not by the members; it is the company as a separate person that enters into contracts in relation to the company's business and property”.

2. Evaluation Of The Decision In Salomon Case

A. Positive