Company Law

Company Law Essay

Duha Al-Wakeel

‘Salomon v Salomon is an outdated case with little relevance to modern company law.’

Salomon v Salomon[1] served to establish the principle of corporate personality that ‘forms the cornerstone of company law.’[2]   It is my contention that despite various attempts by both the legislature and the judiciary to circumvent the principle, this ‘cornerstone’ has not been eroded, rather, it forms the very foundations of modern company law.

Salomon v Salomon was and still is a landmark case.   By confirming the legitimacy of Mr Salomon’s company the House of Lords put forward the concept of separate corporate personality and limited liability.   Inextricably linked with this ratio is an acknowledgement of the importance of certainty within the law, thus separate corporate personality becomes a concrete principle to which the law must adhere.

Salomon v Salomon is followed in subsequent cases, notably Macaura v Northern Assurance Co.[3] and Lee v Lee’s Air Farming Ltd[4].   These cases highlight the reality of the separate corporate identity and take it a step further in stressing the distinction between a company’s identity and that of its shareholders.   In effect Salomon’s principle as confirmed by Macaura v Northern Assurance Co. and Lee v Lee’s Air Farming Ltd. helps form an image of a corporation as a ‘depersonalised conception’[5], an object that is ‘cleansed and emptied of its shareholders.’[6]

Yet the concept of an incorporated company as a separate legal person causes some difficulties, for surely all ‘legal personality is in a sense fiction’.[7]   Questions soon arise as to the exact nature of this legal personality, and consequently measures are taken to mitigate its effects.   Although a corporation is, as per Lord Halsbury, to ‘be treated like any other person with its rights and liabilities appropriate to itself’[8] this is surely impossible.   The idea of a separate legal person has been pushed to its...