Essay about Salmon V Salmon

3092 Words Jun 13th, 2011 13 Pages
29. Introduction

30. The decision of the House of Lords in Salomon v Salomon & Co Ltd [1] evinces the accuracy of Gooley's observation that the separate legal entity doctrine was a "two-edged sword".[2] At a general level, it was a good decision. By establishing that corporations are separate legal entities, Salomon's case endowed the company with all the requisite attributes with which to become the powerhouse of capitalism. At a particular level, however, it was a bad decision. By extending the benefits of incorporation to small private enterprises, Salomon's case has promoted fraud and the evasion of legal obligations. Nonetheless, this article will argue that the overall balance is positive. Salomon v Salomon

31. At its most
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At issue, however, is what this entails and why the Salomon principle has proven so robust.
36. From a practical perspective, the answer to the question above demands a close attention to detail. The separate legal personality of a corporation is often the reason why a corporation has been favoured for the conduct of commercial enterprise or social organisation.[18] It is argued that: 
Companies will be desirable or necessary when the arrangements that are to pivot on them are not conveniently or realistically to be erected directly around individual human beings... The individual human being is fickle, short-lived, and difficult to organise into larger-scale economic and political associations on a permanent basis.[19] 

37. Thus, many commercial enterprises must be owned and managed by a body corporate rather than by its human owners directly, in person.[20] This is possibly due to the recognition in Salomon's case that incorporation achieves the interposition of a legal person between the natural persons who own and control it, and the business activity to be undertaken.[21] In essence, a corporation is "... an artificial person composed of natural persons".[22] Being a legal artifice, however, the company is metaphysical in form rather than physical.[23] Any difficulties this implies are overcome by virtue of subsection 124(1) of the Corporations Act which

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