Assignment on Legal Personality, Limited Liability, Courts’ Attitude in Lifting the Corporate Veil as well as Courts’ Likings and Reluctance Thereto

Legal personality may be described to indicate as personality attached by law. Strictly speaking, a company by incorporation is vested with a legal personality which is distinct from the members who compose it. The outstanding feature of a company is its distinct legal personality. A company is in law a person. It is a distinct legal persona existing independent of its members. As a distinct entity company can play the role of a single contracting party. The first and most important contribution of corporate law, as other forms of organizational law is to permit a company or a firm to serve this role by p providing for the creation of a legal person- a contracting party distinct from the various individuals who own or manage the company or the firm.
The core element of legal personality is what the civil law refers to as “separate patrimony”. This is the ability of the company or firm to own assets that are distinct from the property of other persons, such as, shareholders, investors etc.
So far corporations are concerned there are two relatively distinct rules of law involved. The first is a “priority rule” and the second is a rule of liquidation protection”. Legal entities such as, the business corporation, that are characterized by both these rules can therefore be thought of having a “strong form” of legal personality as opposed to the “weak form” of legal personality found in partnerships.

A company is a legal personal separate and distinct from the people who hold shares in it and the people who manage it. The company continues in existence even though managers and shareholders may come and go. It is the company, not managers or shareholders, that acquires contractual rights and undertakes the contractual liabilities that are involved in the running of the business. As a legal person, a company can incur tortious liability and can be prosecuted for committing crime. The separate legal personality of the company distinguishes it from other business structures.


The leading case on corporate personality is the decision of the House of Lords in Salomon Vs. Salomon & Co. Ltd. (1897) Ac 22, HL. Wherein their Lordships came to the conclusion that an incorporated company is a legally different person from the persons who had formed the company. Accordingly, even though Mr. Salomon controlled all the shares in the company, the contract between him and the company creating the security was a valid contract and gave rise to an enforceable security.

The privilege of limiting liability for business debts is one of the principal advantage of doing business under the corporate form of organization. The company being a separate legal person is the owner of its assests and bound by its liabilities. The term limited liability implies that the members’ liability becomes limited & restricted to the nominal value of the shares taken by them or the amount guaranteed by them. No member is bound to contribute anything more than he nominal value of the shares held by him. Conversely in a partnership, the liability of the partners for the debts of the business is unlimited.

Limited liability is basically an advantage of incorporation. Limited liability does not follow automatically from the principle of separate legal personality. If it did, then unlimited companies in which the shareholders are liable to contribute to meet the company’s debts in full could not exist. Corporate personality means that, the company, not its shareholders, is the person responsible for the debts of the business. The extent to which the company can require its shareholders to provide the finance to meet the liabilities of the business is a logically distinct issue.

So in fine, we can say, limited liability means, shareholders in companies limited by shares are liable to contribute only a limited amount to its assets. The minimum amount of the contribution is the par value of the shares- that is the value ascribed to the shares in the company’s constitution- but where the shares are issued at a price higher than the par value then the required contribution is par value plus the premium.
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