Theory Of Corporate Personality | Company Law | Cases Saloman V. Saloman | Lee V. Lee
Corporate personality is the creation of law. And as per the law, a corporation is an artificial person created by the personification of a group of individuals. The theory of corporate personality mainly states that a company has a legal identity different from its member. Both English and Indian laws follow the concept of corporate personality.
For the first time, this concept was recognized in the year 1867 in the case of Oakes v. Turquand and Harding. But it was approved and firmly established in the leading case of Salomon vs. Salomon in which it was held that a company has its own personality which is different from the personalities of the individuals.
I. CASE STUDY: Salomon v A Salomon & Co Ltd:
Issue: Was the formation of Salomon’s company a fraud intended to defraud the creditors?
In this case, it established the concept of separate legal personality of a company that allowed shareholders to carry on trading with minimal exposure to the risk of personal insolvency in the event of a collapse.
Held: The court said that on incorporation, the company became an independent legal person and not an agent of Salomon. Salomon, as a debenture holder of the company, was ought to get priority in payment over the unsecured creditor.
II. CASE STUDY: Lee v. Lee’s Air Farming Ltd.
Issue: Was there a separate legal entity? Whether Mrs. Lee can claim compensation?
Held: Judicial Committee of the Privy Council also said that a company is a separate legal entity so that a director could still be under a contract of employment with the company he solely owned.
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