ee legal entity his means that a company has a legal entity distinct from and independent of its members‘. The creditors of the company can recover their money only from the company and the, psoperty of the company. They cannot sue individual members. Similarly, the company is not in any way liable for the individual debts of its members. The property of the company is to be used for the benefit of the company and not for the personal benefit of the shareholders. On the same grounds a member cannot claim any ownership rights in the assets of the company either individually or jointly during the existence of the company or in itsf the company can enter 5 he same time the members of nanner as any othe, winding up.” At Mie the company in the same ee seyalio a a into-contracts wi fi mpany is gnize into-contracts vate leaal entity of the CO pal a i individual carl. Separate, oo company is required to pay Income-tax cl by the Income, ay Ee ae ofits are distributed to shareholders in the its profits and when these pr y income-tax on thei ns Pease the shareholders have to pay ir orm Ib vidend incoi ny and its shareholders are ivi income. This proves that a company i h a divid : id two separate entities. ; a8 Sean The principle of separate legal entity was aati ‘pI in the famous case of Salomon v. Salomon & Co. Ltd. In this case Salomon had for many years carried on tis aa business as a leather merchant. In 1892, he decided aay i . a limited company. In the newly formed company, his wife, one laughter and four sons took up one share each of £1 to fulfill the statutory requirement of at least seven members. Salomon, with his two sons, constituted the board of directors. The purchase consideration was paid by the company by the allotment of 20,000 shares of £1 each and £10,000 debentures which gave Salomon charge over all the assets of the company, and the balance was paid in cash to Salomon. The company almost immediately ran into difficulties and only a year later the then holder of the debentures appointed a receiver and the company went into liquidation. The Position on liquidation was as follows: debentures issued to Salomon-£10,000: unsecured creditors —£7,000; and assets-£6,000. Thus it was found that after paying the debenture holders, nothing was left for Unsecured creditors. The unsecured creditors contended that Salo Ltd., are one and the same; Salomon could The company was a mere shay mon, and Salomon and Co. not owe money to himself. j ™ and an agent or i who remained the real proprietor of the taste ee 4 secured creditor, he was Creditors. It was observed:«When the memorandum is duly signed and registered though there be only seven shares taken, the subscribers are the body corporate capable forthwith of exercising all the functions of an incorporated company. It is difficult to understand how a body corporate thus created by statue can Jose its individuality by issuing the bulk of its capital to one person. T he company is at law a different person altogether from the subscribers of the memorandum; and though it may be that after incorporation the business is precisely the same as before, the same persons are managers, and the same hands receive the profits, the company is not in law their agent or trustee. The statutes enacts nothing as to the extent or degree of interest which may be held by each of the seven or as to the proportion of interest, or influence possessed by one or majority of the shareholders over others. There is nothing in the Act requiring that the subscribers to the memorandum should be independent or unconnected, or that they or any of them should have a mind or will of their own, or that there should be anything: like a balance of power in the constitution of the company." Similarly in Lee v. Lee's Air Farming, Ltd.’, Lee incorporated a company. He had himself appointed the Managing Director and Chief Pilot of the company. He was killed in an air crash, while working for the company and his widow claimed compensation. It was held that Lee and Lee's Air Farming Ltd. were separate and, as such, a claim for compensation was valid. "In effect the magic of corporate personality enabled him to be the master and servant at the same time." The Indian courts have also recognized the principle of separate legal entity of a company. For instance, in Abdul Hag v. Das Mal*, an employee of a company had not been paid salary for several months. He sued a director of the company for the recovery of the amount due to him. It was held that he could not succeed because "the remedy lies against the company and not against the directors or members of the company." This means that a company incorporated under the Companies Act has an independent corporate personality, separate and distinct, not only from the entities of its members but also from the entities of its directors and other managerial personnel ae Principle of separate legal entity was applied in other cases as Dhulia-Amalner Motor Transport Lid. v. Roychand Rupsi Dharamsi?, Fliteroft Case", TR. P, nat se, T.R. Pratt (Bomba, aso} it jombay) Lid. v. E.D. Sas and Co. Lid.'', Mac aura v, Northern Assurance o Lid 2 on