THE CONSEQUENCES OF SALOMON V. SALOMON
Following the decision of the House of Lords in Salomon‟s case, it was established that upon incorporation the company acquired certain attributes such as a separate legal personality, limited liability, the right to sue and be sued amongst many others which mayor may not be advantageous to its existence as a going concern. Examined below are some of these consequences of incorporation.
Advantages for Business
(a) Separate legal personality
The fundamental attribute of corporate personality from which indeed all the other consequences flow is that the corporation is a legal entity distinct from its members. Hence it is capable of enjoying rights and of being subject to duties which are not the same as those enjoyed or borne by its members.
446
The authority on this principle is the decision of the House of Lords in Salomon v. Salomon
where Lord MacNaghtenopined that
“The company is at law a different person altogether from the subscribers to the
Memorandum and, although it maybe that after incorporation the business is precisely the
same as it was before, and the same persons are managers, and the same hands receive the
profits, the company is not in law the agent of the subscribers or trustee for them. Nor are
subscribers as members liable, in any shape or form, except to the extent and in the manner
provided by the Act.
“447 This phrase describes the fact that the ownership and management of a corporation are distinguished, and the fact that the members of the company are separated from the trading relationships entered into by the company in the outside world. Indeed the phrase is appropriate because, functioning very much like a veil, the membership of the company is revealed but cannot be touched by third parties
446
Gower & Davies, Principles of Modern Company Law,9
th ed. (Sweet & Maxwell, 2012) p. 35 447
[1897] AC 22 at 51.
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