Separate legal personality plays a vital role in company law. Salomon v Salomon was the first case to establish separate legal personality. Salomon v Salomon Ltd 1897 AC 22; https://www.explore-law.com/salomon-v-salomon/ Macaura v Northern Assurance; https://www.explore-law.com/macaura-v-northern-assurance/ ‘Lee v Lee Air Farming’; https://www.explore-law.com/lee-v-lees-air-farming/

1. The Doctrine of
Separate Legal
Personality
Company Law : Lecture 1

2. General Rule
On incorporation, a company becomes a legal
entity separate and distinct from its
shareholders, directors and employees.

3. • Facts:
• Mr Salomon was a sole trader of a shoe making company in England.
• He then incorporated it by selling it to a separate legal person A Salomon
& Co Ltd for £39,0000.
• Under the Companies Act 1862 (no longer valid) a company required a
minimum of seven members.The members of A Salomon & Co Ltd was Mr
Salomon himself, Mrs Salomon and his five children.
• Mr Salomon held 20,000 shares whereas the other 6 shareholders had 1
share each.
• The Company still owed Mr Salomon £10,000 so gave him debentures for
this amount which gave him a floating charge entitling him to payment in
the event of liquidation- company went into liquidation.

4. • Facts
• Mr Macaura sold all timber to a company (Irish Canadian Saw
Mills Ltd) in which he and his nominees held all the shares.
• Subsequently Mr Macaura insured the timber against fire on
policies in his own name.
• After two weeks, a fire broke out and he claimed the insurance.
• The insurance company, Northern Assurance Co Ltd, argued
that Mr Macaura did not have an insurable interest as
a shareholder in the company. They argued that the company is
a separate legal entity.

5. • Facts:
• Company employed Mr Lee who was a majority shareholder
and “governing director for life”.
• Mr Lee held 2999 of the 3000 issued shares in the company
and 1 of the share was held by the wife as a nominee for him.
• Mr Lee was the director of the company and also employed as
a chief pilot.He was killed while crop spraying.
• His wife wanted to claim workers compensation

6. Reference
• ‘Salomon v Salomon Ltd 1897 AC 22’; https://www.explore-
law.com/salomon-v-salomon/
• Macaura v Northern Assurance; https://www.explore-law.com/macaura-
v-northern-assurance/
• ‘Lee v Lee Air Farming’ ; https://www.explore-law.com/lee-v-lees-air-
farming/