The Corporation as a Legal Entity - Coursework Example

The formation of an entity requires the input of different stakeholders, including the owners, the investors, and the directors and managers. At law, the corporation is a separate legal entity from all those people involved in its formation, and has it owns rights and liabilities. Therefore, it is evident that the corporation has its own rights and duties, separate from the directors and stakeholders in the company, who are usually separated from the corporation by a corporate veil. This means that a company can, in its own right, perform contracts, own assets, perform lawful actions, and be liable to the authority in its own name.

This principle, called the Salomon Principle, was established in 1897 in the case of Salomon V. Salomon, which will be discussed in detail at a later stage in this paper. This principle was later affirmed by the House of Lords, which stated that the company is not an agent of the owners of the said company. This means that, in law, the company is an entirely separate being from the subscribers to its memorandum, and in law, is not an agent or trustee of the said subscribers. The Establishment of the Doctrine of Incorporation The doctrine of incorporation was firmly established by the House of Lords in Salomon V. . ted that, even though the company could be the same as it was before incorporation, with the same managers, same people sharing profits, it is still an entirely separate entity.

The members are, therefore, not liable in any way for the company, except in instances as prescribed in the Companies Act 2006. In stressing this doctrine, the House legalized the usage of the corporation by individuals seeking to put a veil between themselves and their creditors. The effects of this decision are widespread, for example, in Foss V. Harbottle (1843), it was held that the corporation can sue and be sued in its separateness from the shareholders. The decision in Regal (Hastings) V.

Gulliver (1942) also established that the other effect of the Salomon Principle was that the company has perpetual succession, and that the company can enter into contracts in its own name, separate from its shareholders. The fourth implication of the Salomon Principle is that the corporation has the sole right to acquire, possess and dispose of its own assets, which was decided in Macaura V. Northern Assurance Limited (1925). However, Lord MacNaughten’s ruling concerning the Salomon Principle was not a good decision, since it gives some parties unreasonable shield, which can be detrimental to the individuals dealing with the companies.

The case established an important principle in company law, that of the independent existence of a registered company or corporation. The inflexible application of this principle can be detrimental to the persons dealing with the company, since the corporate veil is insecure. Piercing the Corporate Veil As previously stated, there are instances where courts are allowed to remove the corporate veil enjoyed by shareholders and apportion liability directly to the