Salomon V Salomon And The Legal Entity

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Salomon Doctrine According to Companies Act 2006, once incorporated a company have its own legal personality. By all means, it is separated from its shareholders or directors. The separate legal entity principle is well-known and causes many debates. Throughout the years the fundamental doctrine established by the historical case Salomon v Salomon went through many subsequent developments. Since the enactment of Limited Liability Act 1855, the case was the first that explored the effects of the separate legal entity. At first instance and Court of Appeal the Salomon’s appeal was rejected, th erefore the company was an agent. The reasoning of trial judge, Vaughan Williams J concluded that Salomon was an agent of a company that was formed…show more content…
The key problem was that according to Otto Kahn-Freund the ‘courts had failed to give … protection to the business creditors’, which is the result of the principle. Limited liability is an instrument that basically encourages the process of development of the economy. Lack of limiting the liability, the risks of investing would be significantly higher and the obligations will expand. The separation of the corporate entity, is a protection and overall, without its establishment the results will be lower activity in the entire economy. However, on the creditors’ point of view regarding the liability, there is a restriction of the assets and they cannot exceed company’s assets, which in case of wound up the unsecured creditors’ claims could not be fully met. Development of the separate legal entity principle Since ninetieth century, the Salomon principle has been reviewed by series of cases and through its development, the common law implemented different approaches regarding the circumstances of upholding the doctrine. Although there are critiques and attempts of disregarding the principle of corporate personality the courts affirmed the Salomon doctrine. Except the common law there are also statutory exception and it should be also noted that in certain circumstances such as disclosure of
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