Separate Legal Personality Case Study

Question: Critically assess why limited liability and separate legal personality are so important for company law and whether the English courts should be more prepared to disregard these principles in the context of corporate groups.

1 Introduction

In this essay I will begin with the concept of a company having a separate corporate personality and limited liability with their importance in company law. The doctrine of separate legal personality which was made by the House of Lords in Salomon v Salomon and co ltd (1897) was the landmark case. Furthermore I will describe the concept of the ‘veil of incorporation’. I will give relevant cases of when the veil of incorporation can be lifted by the courts and statuary provisions, for instance,

The main substance of a company is that it has a corporate legal personality different from the members who form it. As a consequence of the separate legal personality granted a company under s 16(2) of the Companies Act 2006, a registered company becomes a body corporate . This process takes less than a week. The process is simple quick and inexpensive. To form a registered company under CA 2006, there has to be lawful purpose and one person. It is the company who goes into contracts, the company which possesses the property, the company to whom directors owes their obligations, the company can enter into transactions with its own members and it is the company who gets obliged. The principle stated under Foss v Harbottle says that the company is a proper plaintiff to bring a case before the

A shareholder in a limited liability company is personally liable for the sum already invested in the firm and for any unpaid sum on the shares in the company, if any. The same is valid for the members of a limited liability partnership and in a limited partnership for partners. For instance, the directors of small companies are mostly required to give personal guarantees to those who lend to the company.

In United Kingdom corporations that have limited liability are called companies the owners are called shareholders. There must be at least one shareholder in a private limited company. Shareholders also have limited liability. In the event when the organization gets into monetary troubles the shareholders can lose what they contributed but nothing more but unlimited liability the sole trader is personally liable for the misfortunes of the business.

One of the most vital characteristic of limited liability is that it encourages the operation of equity markets. Limited liability permits parties to allocate the risk of a company to a more efficient risk-bearer in particular circumstances. Limited liability secures the personal wealth of the shareholders. It is simpler to raise finance both through the sale of shares and also easier to raise debt. It is a stable form of structure as the companies continues to exist even when shareholders change. Limited liability companies can pay less tax and enjoy greater tax incentives and