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Limited Liability, and effect on contract and tort creditors.
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Company Law Question 2 In a corporate group every company in the group is a separate legal entity to the other companies which are within the group. This was established through Salomon's case, through incorporation a company has limited liability. In Salomon's case the House of Lords found that "a person may sell a business to a limited liability company of which the person is virtually the only shareholder and director. The company was a separate legal entity distinct from its shareholders and directors"1. The incorporation of a company whether it is owned by one man or a group of shareholders would not change the fact that creditors are dealing with a company with limited liability. Corporate groups as a result of the Salomon's principle indicate that creditors can only claim against the company in which the debt is against and can not be enforced against the parent company. Limited liability is...
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