The twin concepts of Separate Corporate Personality and Limited Liability.

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“In this country as elsewhere company law has, to a large extent, changed its economic and social function. The privileges of incorporation and of limited liability were originally granted in order to enable a number of capitalists to embark upon risky adventures without shouldering the burden of personal liability. There was, in the second half of the nineteenth century, a definite commercial need for those measures, which the various Companies Acts introduced. However, owing to the ease with which companies can be formed in this country, and owing to the rigidity with which the courts applied the corporate entity concept ever since the calamitous decision in Salomon v. Salomon s Co., Ltd, a single trader or a group of traders are almost tempted by the law to conduct their business in the form of a limited company, even where no particular business risk is involved, and where no outside capital is required… the metaphysical separation between a man in his individual capacity and his capacity as a one-man-company can be used to defraud his creditors who are exposed to grave injury owing to the timidity of the Courts and of the Companies Act”.

Discuss the implications of the writer’s argument to company formation and the implications in relation to the twin concepts of Separate Corporate Personality and Limited Liability.

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