Question

2. Briefly explain the ‘separate entity’ between a public listed firm and owner of a firm.

Answer 1

A company is a separate legal entity as distinct from its members, therefore it is separate at law from its shareholders, directors, promoters etc and as such is conferred with rights and is subject to certain duties and obligations.

These central principles of company law were first laid down in very clear terms by the House of Lords in the case Salomon v Salomon & Company Ltd [1897] AC 2. The ruling has several important consequences, not least that where the liability of the members is limited, they cannot, only in exceptional circumstances be held liable for the companies debts.

Under the concept of Limited liability the owners of the company under normal circumstances, are not answerable or responsible for the obligations of the company therefore making the owners/ shareholders liable only for the amount of their unpaid shares and not the obligations of the company.