Company Law

The principle of corporate personality is confirmed by the case of Salomon and reaffirmed by later cases. The company is recognised as a separate legal person from its members. This case initially was regarded as the corner stone of which company law was formed. The principle of corporate personality was then incorporated in the Company Act 1985 under section 13(3); company would be seen as a separate legal entity as long as the requirements under the act were fulfilled. The case therefore established the complete separation between the company and those involved in its operations. The decision made in this case is the main principle in showing the distinction between companies and partnerships.
The limited liability rule shielded investors against incurring full liability for the wrongs of the company. This has been a major advantage to companies as it is likely to promote more investors to the company .Many larger parent companies are able to structure their companies in such a way that liability would not fall upon themselves but to their smaller subsidiaries instead. As stated in the case of Adams v Cape it is not illegal for companies to structure themselves with the calculated aim of avoiding liability.   The separate entity was designed to protect the shareholders and managers and those with interests in the company against the company itself. Therefore, the idea of a ‘veil’ was designed to protect shareholders from liabilities incurred as a result of the company’s actions.
The law in the United Kingdom is seen to favour the Salomon principle and rarely wishes to ‘pierce the corporate veil,’ in order to enforce liability on the members. Corporate personality and limited liability offers double protection to corporate shareholders that hold more control and influence than the individual shareholders.   This could be highlighted in subsequent cases following the landmark decision. Salomon v Salomon is followed in subsequent cases, notably Macaura v Northern...