1 Introduction The doctrine of corporate personality is one of the foundational principles of modern corporate law. It grants a corporation the capacity to possess certain legal rights and responsibilities as if it were a person.The history of this concept dates back to the 19th century. Before the 1800s, any attempt to attribute legal rights to a business entity was generally severely restricted or altogether prohibited by the common law. This changed in the mid-1800s, starting with the decision of the British House of Lords in Salomon v. Salomon & Co. in 1897. Overall, the recognition of corporate personality has allowed for much needed flexibility and adaptability in commercial and financial arrangements and has greatly facilitated business and economic activities.
2 Salomon v. Salomon & Co.
The British House of Lords decision in Salomon v. Salomon & Co. in 1897 is widely regarded as the first modern recognition of corporate personality. This decision held that a corporation could have its own separate legal identity from that of its owners and shareholders. This case involved a leather merchant named Aron Salomon who incorporated his business into a company called Salomon & Co. The company became a trading business, with Mr. Salomon and his family owning 20 of the company’s 20 shares. The remaining 4 shares were owned by 4 independent directors. The business subsequently went into liquidation and Mr. Salomon attempted to use the companys assets to pay the creditors. This was challenged by the creditors, who argued that Mr. Salomon should not be able to benefit from the company’s assets to the detriment of the creditors.
3 The Key Holding in Salomon v. Salomon & Co.
The House of Lords held that Mr. Salomon was entitled to the assets of the company due to his ownership of 20 of the company’s 20 shares. However, it was also held that the company was legally distinct from Mr. Salomon, with its own legal identity. This led to the establishment of the doctrine of corporate personality. The House of Lords held that the company and Mr. Salomon were “two distinct persons, for one is a human being and the other is a company incorporated by a statue”. This decision is still regarded as the leading authority on corporate personality and has been cited in numerous other cases since then.
4 Subsequent Developments
Since the decision in Salomon v. Salomon & Co., the doctrine of corporate personality has been developed in a number of ways. The decision was validated by the Companies Acts of 1929 and 1948, providing a legislative basis for the decision. The Companies Act 2006 also codified the doctrine and further clarified its application. In 20th century case law, courts have also fleshed out the contours of the corporate personality principle. For example, cases such as Macaura v. Northern Assurance Co. Ltd. and Gilford Motor Co. Ltd. v. Horne have established the principle of separate legal personality for companies, even where the company is owned by only one person.
5 Conclusion
The doctrine of corporate personality has been regarded as a cornerstone of modern corporate law. Since the decision in Salomon v. Salomon & Co., this principle has been developed over a period of more than a century, providing legal flexibility and allowing companies to pursue activities independently of their owners and shareholders. The recognition of corporate personality has enabled tremendous advances in commercial and financial arrangements and has greatly facilitated business and economic activities.
