Company law Essay Example | Topics and Well Written Essays - 2500 words - 1

Company law - Essay Example It implies that if somebody starts a business as a limited liability company, the company is regarded as a legal entity with a separate legal personality, which signifies that a company is different from its owners, employees along with shareholders. This in turn assures the advantages of ‘corporate veil’ to the company, wherein the owners, employees and shareholders are directly charged with the damage claims or tort claims caused due to their misconduct or irresponsible conduct with the name of the company. The Salomon principle in this regard emphasises that a company only provides grounds for individuals to act in its behalf and thus, charges in lieu of the tort laws should be treated in a way that makes the decision makers directly, personally and professionally liable for the damages1. In this regard, it has often been argued and has subsequently been under stern arguments that the tort creditors of a subsidiary company holding limited liability shall be deemed as ineligible to obtain the benefits from Salomon principle. It is worth mentioning in this context that because tort creditors are also recognised as involuntary creditors and fall into the classification of unsecured stakeholders2. The case rule in Adams v Cape Industries plc plays an influential role in this context wherein it affirms that employees of subsidiary companies, as involuntary creditors and also as tort creditors should be considered as eligible to demand damage compensations from the parent company. In is in this context that the application of Salomon principle is regarded as unjust in respect to the tort creditors where the parent company bears a rational degree of ‘duty of care’ to protect the interests of its subsidiary tort creditors3. Emphasising this particular issue, the discussion henceforth intends to discuss about the applicability of Salomon principle in the company law. Moreover, the discussion will also emphasize on the various aspects on the basis of which Salomon principle is regarded to be unfair for tort creditors of a subsidiary company. Solomon Principle and Tort Creditors of a Subsidiary Company As mentioned above, the Salomon principle has been developed from the case ‘Salomon v Salomon & Co, Ltd’. The Salomon principle implies that corporate decision makers should be legally entitled to compensate the damages suffered by the stakeholders of the business due to their misconducts or ignorance to ‘duty of care’, as per the relevant tort law. These companies are regarded as private and should be registered under the Companies Act 1862. In this regard, a registered company is determined to possess a separate legal entity as per the Salomon principle, which differentiates the statue of such a company from its shareholders, employees and other individuals associated with it. In this context, a company incorporated under the Companies Act 1862 is treated as an independent individual possessing its own respective rights along with liabilities that are different from the rights and liabilities owned by its decision makers, which further justifies the application of corporate veil in segregating the liabilities of individuals from that of the company as separate entities. There are various instances where the principle of