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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.
He sold his business to the newly formed company, A Salomon & Co Ltd, and took his payment by shares and a debenture or debt of £10,000.
Macaura's case is depending upon the fact that Company whether private or public is distinct from his owner if he took the policy from insurance company at the name of company then he could claim for damages. Only Macaura’s company, as owner of the timber, which had the requisite insurable interest in it.
Only the company, and not Macaura, could insure its property against loss or damage.
These are the exceptions to the rule in Salomon’s Case, when the corporate veil is lifted and the reality of the situation is examined.
The issue was whether Macaura had an insurable interest at the time of the loss.
Once a company or corporation is formed, the business which is carried on by the such company or corporation is the business of that company or corporation and is not the business of the citizens who get the company or corporation incorporated and the rights of the incorporated body must be judges on that footing and cannot be judged on the assumption that they are the rights attributed to the business of individual citizens.
The court held that the income-tax authorities were entitled to pierce the veil of corporate entity and to look at the reality of the transaction to examine whether the corporate entity was being used for tax evasion.
The ‘corporate veil’ surrounds the company of Murphy & Co Ltd and prevents outsiders challenging the operation of the company.
However, although the principle of separation is central to company law, there are a number of situations when the company and its members can be identified together and treated as the same.It is quite common in Ireland for one person to have such a variety of roles and still be a different legal entity from the company. Lee formed his crop spraying business into a limited company in which he was director, shareholder and employee. Lee was self-employed and thus not covered by the legislation. Lee and the company he had formed were separate entities, and it was possible for Mr. The following case is similar to Salomon and Lee, but the principle of separate personality worked to the disadvantage of the plaintiff.