Critically Assess the Effects of Corporate Separate Personality.

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Critically assess the effects of corporate separate personality.
The fundamental concept of corporate separate personality recognises that a company, once incorporated, becomes a ‘body corporate’, i.e. a legal entity distinct from its members and officers. The various effects of corporate separate personality shall be dealt with in turn.
1) Distinct legal identity from its members
One of the most significant effects of corporate separate personality is that the company assumes a separate identity from that of its members. Even if a company is owned outright by one shareholder, the company has a completely separate personality from that individual. This is confirmed by the leading case of Salomon v A. Salomon & Co Ltd in which the House of Lords held that the company’s acts were its own acts, not those of Mr Salomon personally. As a result, Mr Salomon was not personally liable for his company’s debts. It is worth noting, however, that the Court did recognise that there would be situations in which they would be prepared to move away from that principle and ‘lift the veil of incorporation’ and find individuals liable where they had acted dishonestly, fraudulently or unreasonably.
2) Limited liability
Due to the fact that the company is a separate legal individual, it follows that its members will not generally be liable for its debts and obligations. This gives the shareholders a great level of security, since it means that they are able to profit from the successes of the company whilst being safe in the knowledge that their personal liability is limited to the value of the shares they have purchased. However it should be noted that those members who participate in the management of the company will not necessarily be protected from personal liability. In addition, the concept of limited liability may not be attractive to potential creditors who may require…...

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