Question

James and Dlana have been in a partnership but have now decided to incorporate their business under the Corporations Act 2001 (Cth) to take advantage of the principle of separate legal entity. Explain this principle together with at least three consequences that arise as a result. Pease support your answers with relevant case law

Answer 1

SEPERATE LEGAL ENTITY

Under sec.124 (1) of the corporation Act 2001 says , Every business is seperated from it's owner;otherwise business as an seperate individual. A company have powers and legal capacity of an individual both in the jurisdiction and outside also. The limited liability company and corporation found as a seperate legal body.In the United states , the principal says that, there is a type of legal entity with detached accountability. Under this concept, the company will becomes a body coporate that exists seperatly with it's owners. The concept was evolved during the period between 1840-1880. The principal based case law is as under :

SALOMON v SALOMO ( CASE LAW )

The principal of seperate legal entity was established by the lord in salomon v salomon co.( 1897 ). It was one of the landmarked/ mile stone of company case law in UK. Salomon was a soleproprietorship having boot making. Later it incorporated as a company with members of his family. After the incorporation, salomon started to raise fund from the public in the way of shares and debentures , having floating charge on assets of the company. Later the business failed, and company went in to liquidation. The case concerned with the claims of creditors in the liquidation process of the company, was sought to be liable by salomon for the debt of company. Under the situation, the problem was regardless of the seperate legal identity of the company, a shareholder must be liable to pay for the debts of company , above the capital contribution, to identify such person to unlimited personnel liability.

RULE : The court of appeal, declared the company to be myth. Explains that, salomon incorporated with contrary to the true intend of the companies act, and later conducted the business with company as an agent of salomon. Because of the same reason Salomon is liable to pay to the creditors of compay in the course of such agency.

LEGAL CONSEQUENCES OF SEPERATE LEGAL ENTITY CONCEPT

• Assets purchased in the name of company will belong to the company itself , and not to any individuals , shareholders who has direct connection with the company. It means that company is a seperate legal owner and has the right to ownership of the property.   
• Debts, which is undertaken in the name of company, belongs to company, not the controller or shareholder as well.   
• Company can enter into an contract with it's shareholders or any meamber, (as it's a seperate person)) due to they are controlling members.
• Employer in a company, owes a obligation to provide a safe system of work.