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Separate personality means that the artificial legal person, the company, can do almost everything a human person can do; it can make contracts, employ people, borrow and pay money, sue and be sued, among other things.

The ‘veil of incorporation’ is the rather poetic term given to this separation of the company from its shareholders or members.

This separation of a company from its members was established in the House of Lords in the famous case. Salomon had a boot manufacturing business which he decided to incorporate into a private limited company.

The corporation is liable for its taxes - not the owner.

This is how corporations may sue and be sued, and their assets are tracked separately.

Mr Salomon owned 20,000 £1 shares, and his wife and five children owned one share each.

Some years later the company went into liquidation, and Mr Salomon claimed to be entitled to be paid first as a secured debenture holder.

The result was that Mr Salomon was entitled to be repaid the debt as the first secured creditor.

Last modified 29-Oct-2017 01:10