Business Relations : Salomon Vs. Salomon & Co

1250 Words5 Pages
Human beings are commonly legal person but humanity is a state of nature which may be or not be deliberated. In the eighteenth century business relations were considered to be contracted between “real” persons, whereas after that time legal relationships had been extended to relations between companies, considered as separate legal personality. In company law it has been held that a company is considered as a separate legal entity holding its own assets, debts and equities. Prior to 1840s a company had to be incorporated from Royal Charter or by the Parliament. However, during that time British Empire was facing high high competition from other European countries. While the vast majority of British companies were in the hand of family enterprises America was growing companies such as J.P Morgan. While Britain had the ability to compete, the bureaucracies forming a firm was crushing the national economic development. Salomon vs Salomon & Co became an important part and a decisive revolution of company law since 1897. This principle determines that a company’s assets belongs to it and not to its directors or other parties involved and is responsible for its own debts and liabilities. Thus, shareholders and directors are not liable for paying back creditors in event of liquidation. The separate legal personality of a company signifies one of the most vital principles of company law which was first established by the House of Lords in Salomon case. This case defines the legal
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