Salmon Vs Salmon Case , Compony As seperate legal Entity

2. Matti UR Rehman
Fa12-BBA-058

3. Outline
 Background
 Forms of Business
 What Is Company?
 Company As Separate Legal Entity
 Conclusion

4. Background
 The idea of separate legal entity was originated from
the case named as Salmon Vs Salmon.
 The facts in this case disclosed that a company had
been incorporated by Mr. Salomon in which he and
members of his family were the only shareholders.
 The issue arises when the company’s business turns to
be a failure.
 The value of the assets was insufficient to pay out both
Mr. Salomon and the company’s other creditors.

5. ...continued
 At that time the statement of affairs’ was like this:
 Assets : $ 6000
 Liabilities:
 Saloman as debenture holder $ 10,000
 Unsecured creditors $ 7,000
 The unsecured creditors claimed a priority over the
debenture holder on the ground that company and
Saloman were one and the same person and the
company was a mere agent in the eyes of law.

6. ...continued
 The House of Lords held that the existence of a
company is quite independent and distinct from its
members and that the assets of the company must be
utilized in payment of the debentures first in priority
to unsecured creditors.

7. Forms of Business
 The three main forms of business are
 Sole trader
 Partnership
 Company
 A major disadvantage for sole traders and partners is
that they have unlimited liability for the debts of their
business.

8. What is Company?
 According to the 1862 Act, Company is a separate legal
entity as distinct from its members; therefore it is separate
at law from its shareholders, directors, promoters etc.
 Companies lives and does its activities at its own existences
 It is treated in its own capacity
 It does the business
 It generates the revenue
 It can incur losses,
 It hires the employees and
 It pays its own taxes

9. Company As Separate Legal Entity
 The effects of separate legal entity are:
 It has perpetual existence, despite changes of its
members and constitution.
 It can own property of any kind, and thus buy and sell
property in its own name.
 It can be a party to a contract.
 It can sue and be sued in its own name.
 Limited liability.
 Transferability and transmissibility of shares.

10. Conclusion
 Saloman’s case established new boundaries that in law
a registered company is an entity distinct from its
members, even if the person hold all the shares in the
company.
 There is no difference in principle between a company
consisting of only two shareholders and a company
consisting of two hundred members, In each case the
company is a Separate Legal Entity.

11. References
 Company Law, Available at
http://mycompanylaw.blogspot.com/2013/06/case-iii-salomon-
v-salomon-co-ltd-1897.html
 A company is a separate legal entity as distinct from its
members, Available at http://www.lawteacher.net/business-
law/essays/separate-legal-entity-as-distinct-from-its-members-
business-law-essay.php
 Separate Legal Entity, Available at
http://accountant4me.com/sep_entity.html
 Separate legal entity, Available at
http://www.drukker.co.uk/publications/reference/separate-
legal-entity/
 Separate Legal Entity (Law 346), Available at
http://graguraman1.blogspot.com/2010/07/separate-legal-entity-
law-346.html