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1. Disadvantages Of Separate Legal Entity
Introduction
During this 21st century, we find that almost every nation has companies set up and these
institutions play a major role in the nation's economy. We can find that new companies are being
incorporated almost in a daily basis under the Companies Commission of Malaysia, in accordance
with Companies Act 1965(The Act). However, we realised that the concept of separate legal entity
derived its mere foundation from Salamon v. Salamon & Co Ltd which dates back to several
centuries.
Characteristics of Separate Legal Entity
Salamon v. Salamon & Co. Ltd has a significance principle that has been recognised universally.
Refer to s16(5) in The Act, once company is registered, the new company is a juristic person that
separate from its members. Likewise, company has the full responsible on its own debts and
contractual...show more content...
Company reduces tax paying by splitting the income through imputing dividends: Hobart Bridge Co
Ltd v FCT .
Disadvantages of Separate Legal Entity Although doctrine of separate legal entity has the greatest
importance in company law, it contains weaknesses that could be arguable. Professor Kahn–Freund
described the doctrine as "calamitous" because it arise many issues, such as "How is it possible to
check the one–man company and other abuse of company law?" Separate legal entity is inadequate
for complex problems .
Due to limited liability, company creditors' interests are not protected . Creditors need to bear the
risks inherent when dealing with limited company. Shareholders are discouraged from monitoring
and controlling the business due to the benefits of limited liability.
Furthermore, the principle of separate legal entity provides an ideal vehicle of fraud . "$2
Company" is an example. The company was formed as limited company that undercapitalised.
Shareholders and directors are not liable for the large debts that the company incurred when the
company couldn't repay
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