Salomons Case Essay

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Based on the leading case in common law Salomon v. Salomon & Co. [1897] AC22, in the modern business corporations, it can be seen that shareholder has limited liability for the corporation's debts and obligations. Clearly it creates a two-edge sword which means it has both good and bad elements. However, the principle of this case occupies a significant position in the development history of company law. Meanwhile the following development since this case proves the separate legal entity is a “double-edge sword”. The key words will be referred following are “separate legal entity” and “lifting the veil”. “Separate legal entity” is used to describe company which means company is separate from the persons who operate or are employed by it, as well as its shareholders, and is incorporated under the Corporation Act 2001 (Cth). The “lifting of veil” simply means Courts give rights or obligations to shareholders and directors who hide behind company in some special conditions. From the Salomon’s Case it can be seen that the final decision clarified that the company was a legal entity separate from its shareholders which absolute respected the separate legal entity doctrine. The House of Load held the company had been validly formed, and that there was no requirement that they have a substantial interest in the undertaking, or involve themselves in its management. Obviously, the separate legal entity doctrine protect the limited liability principal fundamentally, “Salomon's case is universally recognised as authority for the principle that a corporation is a separate legal entity”. Primary, the most significant benefit of it is the company which is considered as a separate legal entity should take responsibility for all contracts signed by company and the liabilities of company but not the employees or shareholders who only take limited liability. Thus

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