Shahir Beebeejaun
M00016088
Critically Assess the Effects of Corporate Separate Personality
A company once incorporated, is a legal person in its own rights and is to be regarded as separate entity from its members. Incorporation is the act of creating or organizing a corporation under the laws of a specific jurisdiction. The corporation may be a business, a non-profit organization, sport club or even a government of a new city or town. To incorporate a business the owner must first register with the Registrar of Companies.
According to Companies Act 2006 section 16 it explains the effect of registration.
All company after incorporation has legal rights and obligations. These obligations must be followed if the company is to ‘survive’. Each corporation has the ability to sue and be sued, the ability to hold assets in its own name, the ability to hire agents, the ability to sign contracts and the ability to make laws which govern the internal affairs.
The case of Solomon v Solomon is a prime example of how the courts established the principle of the separate legal personality of a company. Mr Solomon sold his shoe business to a company under CA1962. He was a shareholder, his wife and also their five children. As part of the sale of the business, Solomon received from the company fully paid shares and also debentures to the value of £10000 which he then assigned to another party (Broderip). The company then went into liquidation. The liquidator then tried to make Solomon liable for the debts of the company by claiming fraud on the creditors and stating the company was his agent. The court held that their was noting wrong with the company and that companies are not agents for their shareholders. This case explains the point that companies have a separate personality from their owners and only the company is liable for its self and the owners are liable for themselves. The principal in Solomon V Solomon has led to the phrase the veil of incorporation. Only the judiciary or the statute may lift the veil of incorporation.
