English Company law – Corporate Personality

English Company law – Corporate Personality
When a company is formed, it becomes a separate legal entity that can perform many of the same functions as a natural person. Unregistered firms could have corporate personality, but with the passage of the Joint Stock Companies Act 1844 and the option to incorporate a company through registration, corporate personality gained new significance. Despite this, it took another fifty years for the courts to recognize the fundamental significance of corporate personality in the following landmark decision.
A Salomon & Co Ltd v Salomon [1897]  (HL) Facts: Salomon worked as a sole trader in the bootmaking industry. He formed a new company and sold the bootmaking firm to it, in exchange for Salomon receiving shares and £10,000 in debentures secured by a floating charge. Salomon had 20,001 shares, and six members of his family each owned one (the Corporations Act of 1862 required companies to have at least seven members), despite the fact that they were not involved in the firm. The company went into liquidation when the business collapsed. Salomon was able to recover the £10,000 owed to him thanks to the floating charge, but there were no assets left to satisfy the company's other creditors. Salomon should be personally accountable for the company's debts, according to the liquidator, because the firm was his agent or trustee. Salomon was not personally accountable for the company's debts, according to the court. The company was not acting as Salomon's agent or trustee; it was a separate  entity with whom the creditors had made a contract. As a result, its debts were not Salomon's debts, and he was entitled to the money owing to him because his debt outranked the debts of the other creditors.

Many consider Salomon to be the most important case in company law because it recognized that a company could legitimately be set up to shield its members and directors from liability; it implicitly recognized the validity of the 'one-man company' (i.e., a company run by one person with a number of dormant nominee members) nearly a century before single member companies could be formally created; and it recognized that a person can hold shares (even all the shares) in a company. Salomon is without a doubt the cornerstone upon which UK business law is built.

The option to set up a company to protect oneself from liability, on the other hand, is certainly vulnerable to abuse. As a result, both Parliament and the courts have the authority to reject a company's corporate identity and impose liability on people responsible for it. This disregard for a company's corporate personality is known as 'piercing' or 'lifting' the'veil,' which refers to the 'corporate veil,' which protects the company's members and directors from liability (although Lord Neuberger criticized the use of these phrases in VTB Capital plc v Nutritek International Corp [2013]).