“The separate legal personality of a company means that shareholders of the company and directors of the company are not responsible for any liabilities that arise as a result of the actions of the company.”
In 1844 incorporation was introduced with the enactment of the Joint Stock Companies Act 1844 (1844 c. 110). The doctrine of limited liability followed in 1855 under the Limited Liability Act (1855 c. 133) which was replaced by the Joint Stock Companies Act 1856 (1856 c. 47). The Act limited the liability of members to the amount they have agreed to invest in the company (Machen, 1910). Therefore, shareholders and directors of the company are not responsible for any liabilities that arise as a result of the action of the company, which gives effect to the separate legal personality doctrine. Since the case of Salomon which settled the corporate entity principle more than a hundred year ago, there has been considerable effort to sidestep this principle. Current legal decisions, however, suggest that there is a clear reluctance to depart from the separate legal personality doctrine. This essay will examine the separate legal personality principle through the Salomon case and continue by evaluate the extent to which this principle is ignored by statute and common law.
Corporate legal personality principle – the Salomon principle
Salomon v Salomon & Co Ltd 1897 is considered to be the landmark of corporation personality doctrine. There are a number of important points from the judgement of this case that have significant influence on the corporate personality doctrine. Firstly, the House of Lords affirmed that “the company is at law a different person altogether from the subscribers to the memorandum; and … the company is not in law the agent of the subscribers or trustee for them” (Lord Macnaghten, 1897). Secondly, incorporation open to everyone and the motives of incorporating the company is irrelevant: “once the company is legally incorporated it must be treated like any other independent person with its rights and liabilities” (Lord Halsbury LC, 1897). CA 2006 s 16(2) reflects this principle by defining a registered company to be a body corporate (Companies Act 2006, s 16(2)). Any one or more persons – natural or legal – may register a limited company (Companies Act 2006, s 7(1)), provided the formal requirements of the Act are complied. On registration the company will be incorporated and so have a separate legal personality (French and Mayson et al., 2013)
The Salomon principle is also applied systematically in common law (Pettet and Lowry et al., 2012). A variety of decisions subsequent to Salomon applied the principle of separate legal personality. For example, it is possible for a company to contract with its members (Catherine Lee v Lee's Air Farming Limited ,  AC 12) and “no shareholder has any right to any item of property owned by the company for he has no legal or equitable interest therein” (Macaura v Northern Assurance Company  AC 619).