Company as a Separate Legal Entity Essay

A legal entity, typically a patronage, that is defined as detached from some other occupancy or individual with at decenniumtiveness to accountability. A know apart legal entity whitethorn be decide up in the case of a conjunction or a limited obligation companion, to discipline the actions of the entity from those of the individual or other beau monde. mean If a business is a disassemble legal entity, it means it has some of the identical rights in natural law as a person. It is, for example, able to enter contracts.In rising Zealand, a beau monde is a break in legal entity from its causeers (sh arholders) and can, for example, be sued, and enter into contracts in the name of the connection, not the shareholders. Sole traders and partnerships are not separate legal, entities from the take iners. Some line of products entities like corporation, LLC can exist apiece from its avouchers. In a common run-in that a corporation is a separate entity of its owners an d corporation itself is an entity like valet organism created through legal or official process. Corporation lives and does its activities at its own existences and is treat in its own capacity.It does the business, it generates the r crimsonue, it can recover losses, it hires the employees and it pays its own taxes. It is a pause discrepancy of existence for the reason it takes its responsibilities itself, owners are bighearted from their individualised liabilities and owners enjoy limited personal liability ( venture) only up to their investments in stocks, though there may be certain situations where their personal responsibilities can evanesce from limited liability concept. fragmentise Entity concept is better choice and it has better features because corporation enjoys separate entity concept, has indefinite life (perpetual). wariness and ownership may change tho corporation will exist indefinitely at its own existence, unless it is officially dissolve or merged. Co rporation has a better scope for large & nonuple businesses, expending business, securing debts, attracting investors, retaining professional setup and pursue professional heed, promoting & achieving forward-looking ideal, expanding its activities at local to global level. Under Separate Entity Concept, Corporation is treated in its own capacity, but it is not a human being, it is an artificial being, therefore, it has to be managed by lot in different capacities such(prenominal) as owners,The shareholders were Mr. Salomon,his wife, daughter and four sons. Two of his sons became directors Mr. Salomon himself was managing director. Mr. Salomon possess 20,001 of the social clubs 20,007 shares the remaining sixer were shared individually between the other six shareholders. Mr. Salomon sold his business to the new corporation for al well-nigh ? 39,000, of which ? 10,000 was a debt to him. He was thus simultaneously the companionships discover/write head shareholder and its principal creditor. polish off of the business took place on June 1, 1892. The procure money the bon ton paid to Mr.Salomon for the business was ? 20,000. The company also gave Mr. Salomon ? 10,000 in debentures that is, Salomon gave the company a ? 10,000 loan, secured by a load over the assets of the company. The balance paid went to quell the businesss debts (? 1,000 of which was cash to Salomon). soon after Mr. Salomon incorporated his business a series of strikes in the shoe intentness led the government, Salomons main customer, to disclose its contracts among much firms. The government wanted to beam its supply base to avoid the risk of its few suppliers being crippled by strikes.His warehouse, as a consequence, was full of unsold stock. He and his wife lent the company money, and he cancelled his debentures, but the company needed more money, so they want ? 5,000 from a Mr. Edmund Broderip. Mr. Salomon assigned Broderip his debenture, the loan with ten per cen t interest and secured by a floating charge. But Salomons business still failed, and he could not guard up with the interest payments. In October 1893, Broderip sued to utilise his security. The company was put into liquidation. Broderip was repaid his ? ,000, and the debenture was reassigned to Salomon, who hold the floating charge over the company JUDGMENT High Court When the company went into liquidation, the liquidator argued that the debentures used by Mr. Salomon as security for the debt were invalid, on the grounds of fraud. The judge, Vaughan Williams J. accredited this argument, ruling that since Mr. Salomon had created the company solely to transportation his business to it, the company was in humankind his agent and he as principal was liable for debts to unsecured creditors.Court Of raise The Court of challenge also command against Mr. Salomon, though on the grounds that Mr. Salomon had ill-treat the privileges of incorporation and limited liability, which the legislative assembly had think only to confer on unconditional bona fide shareholders, who had a mind and will of their own and were not mere puppets. The Lords The kinsperson of Lords nemine contradicente overturned this decision, rejecting the arguments from agency and fraud. They held that there was zero point in the Act about whether the subscribers (i. e. he shareholders) should be independent of the majority shareholder. The company was duly constituted in law and it was not the function of decide to read into the statute limitations they themselves considered expedient. The 1862 Act created limited liability companies as legal persons separate and intelligible from the shareholders. Lord Halsbury state that the statute enacts postcode as to the extent or tier of interest which may be held by each of the seven shareholders or as to the proportion of interest or learn possessed by one or the majority over the others. Lord Halsbury remarked that even if he were to ac cept the proposition that judges were at liberty to insert terminology to manifest the intention they wished to impute to the Legislature he was unable to discover what optimistic proposition the Court of Appeals logic suggested. He considered that identifying such an favorable proposition represented an insuperable fuss for anyone putting forward the argument propounded by the lord justices of appeal.Lord Herschell noted the potentially far reaching implications of the Court of Appeals logic and that in recent years many companies had been set up in which one or more of the seven shareholders were disinterested persons who did not treat any influence over the management of the company. Anyone dealing with such a company was aware of its nature as such, and could by consulting the register of shareholders become aware of the dislocation of share ownership among the shareholders.Lord Macnaghten asked what was price with Mr. Salomon taking advantage of the provisions set out i n the statute, as he was perfectly legitimately entitled to do. It was not the function of judges to read limitations into a statute on the basis of their own personal view that, if the laws of the land allowed such a thing, they were in a most lamentable state, as Malins V-C had stated in an earlier case in point, In Re Baglan Hall pit Co. , which had likewise been overturned by the House of Lords.