A Two-Edged Sword: Salomon and the Separate Legal Entity Doctrine
AbstractBy establishing that corporations are separate legal entities, Salomon's case has allowed companies to become powerful business entities. But this has created a double-edged sword, with both good and bad elements. The negative side of the Salomon decision is shown by the principle of limited liability which protects the owners from debt leaving creditors at risk. Tax avoidance schemes proliferate. But the negative consequences of applying Salomon can be neutralised by legislative and judicial action. The courts have drawn aside the corporate veil and have imposed legal liability on members and directors where there is injustice, inconvenience or damage to government finances. On balance, the decision of the House of Lords in Salomon v Salomon & Co Ltd was a good judgement. |