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Introduction
Separate legality personality principle has been an essential aspect of company law for the last several decades. It has shaped scholarly debates as well as milestone cases in various courts of law. The principle states that companies are considered as “natural person’s” with the ability to enter into legal transaction, sue and be sued and well an own property as it was established in In 1897 Salomon v Sa~omon & Co Ltd,~ (Davies,1997). It thus establishes key differences between the owners or rather the shareholders with the company. This is unlike in a partnership where the owners and the business entity are not as separate. The main purpose of this discussion is the elaboration of the consequences of the legal personality of companies that distinguishes them from partnerships.
The personality principle of a company separates the owners- or members as outlined in the memorandum of the association from the business entity. In the eyes of the law, the company is thus treated as a natural person (Parkinson, 1995). Take, for instance, an employee that gets injured while at work in a construction company. According to this principle, such an employee can sue for damages or compensation from the company and not the shareholders of the company. This is because the presumption is that they were in a legal contract with the company and not the owners. This is unlike in a partnership business where the owner’s liability is not separate from the business, and this is a similar scenario such an employee can sue the owners of the market for compensation.
Secondly, this principle grants a perpetual existence to the company. This means that once the memorandum of association has been formed and signed and all registration procedures have been followed-as evidenced by the certificate of incorporation the company is “born” and comes into perpetual existence. Thus, the death of a member does not in any way affect the company, and it will continue to live on whether the shareholders are alive or dead. This is unlike in partnership, where the life of the business depends on the partners. Death or withdrawal of major partner can have a serious impact, including dilution of the business.
The third consequence of this principle is that companies, just like natural persons, have rights and liabilities. This means that companies can enter into transactions with others. Further, they are liable for such transactions and the debts that arise from the. The owner’s personal property cannot be seized to finance company debts as those who enter into business transactions with companies but do so if entering into purchases of natural persons. If the company goes bankrupt, then creditors can only seize the company assets. This, however, does not apply to partnership business- Partners can easily lose their personal property to cater to the business liabilities as it is assumed, they are one and the same thing with their business.
Another interesting legal consequence of this principle is that companies can enter into legally binding agreements with people. This means that companies can create contracts of various natures such as employment, sale or purchase contracts. Irrespective of the signatories in such contracts the legal burden of their execution lies on the company and the signatories are considered as mere representatives. Likewise, companies can hire legal representation in the court of law. Partnership business lack this ability, and any legal agreements extend the liability to the business partners- the signatories.
This principle also establishes that companies are not agents of the shareholders neither are they “trustees of them”. Thus, the major company or the “parent company” is not in any way seen as the agent of the subsidiaries, the vice versa is true and equally applies. What is notable in this consequence is the fact that the separate legal personality extends to the multinational corporate group enterprises (Davies, 2020).
Be that as it may, such outcome of legitimate independent character has not generally been assessed emphatically particularly importance selectiveness of rights and commitments for an association and not for its individuals. Actually, it’s been built up the idea that at least in some specific conditions the different legitimate character is regularly ignored. These circumstances are notable as “piercing the cover of incorporation”. In this manner, the cloak of fuse and its results have influenced the determinations of the courts. In other words, taking into account that an association turns into a different character with the consolidation, it’s not been simpler to assert when and the best approach to puncture the cloak of joining.
The clear difference between the nature of companies and partnership is that the former is mostly regulated by the personality principle and thus gives the owners more concrete security for their assets as opposed to the later
Conclusion
Generally, the legal personality principle shields the company owners from the unforeseen To the current concern, two methodologies related with the consequences of the different legitimate character have created( Mayson et al., 2014) the smaller methodology, supporting that the legitimate outcomes of the different lawful character join just to the corporate and not its individuals, stems the opportunity to penetrate the shroud of fuse just to circumstances where organization’s property, rights and liabilities are held as by someone else. Further according to this methodology, it’s essential that one in all the legitimate standards for keeping away from the outcome of isolated lawful character must permit the penetrating of the cloak of incorporation like in s.213 of Insolvency Act 1986. the broader approach, because the narrower, doesn’t allow company’s member to be considered in respect to the company’s rights and obligations, but it seems that there is not any limitation associated with legal principles to try and do so
References
Davies, P. L., & Prentice, D. D. (1997). Gower’s principles of modern company law (Vol. 596). London: Sweet & Maxwell.
Parkinson, J. E. (1995). Corporate power and responsibility: Issues in the theory of company law. OUP Catalogue.
Davies, P. (2020). Introduction to company law. Oxford University Press.
French, D., Ryan, C. L., & Mayson, S. (2014). Mayson, French & Ryan on company law. Oxford University Press, USA.
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