Corporate Law: Separate Legal Entity

Executive summary

Under section 124 in Corporation Acts, a registered company must be treated as a separate legal entity with all of the powers and capacities of a natural person. This means that members do not have any liability for the debts generated by a company. The landmark case of separating legal entity is a Salomon case that explains a registered company was a separate legal entity from its owners and managers. The separate legal entity is a privilege given by registered companies that can be a shield for business owners to protect themselves from company debts.

However, sometimes it delivers adverse outcome to the company since the competing conflicts seriously affect partner companies, affiliate businesses or stakeholders in the current market. The leading conflict of interest in the doctrine of separate legal personality is an opportunity for corruption The other competing interest that creates a double-edged sword in the doctrine of separate legal personality is the reality of evasion of the legal obligations of corporations. From my perspective, the doctrine of separate legal personality as a double-edged sword is a correct analogy. The separate legal entity is a privilege given by registered companies that can be a shield for business owners to protect themselves from company debts. However, sometimes it delivers adverse outcome to the company since the competing conflicts seriously affect partner companies, affiliate businesses or stakeholders in the current market.


Introduction

In June 2016, the story of the accounting fraud of Daewoo Shipbuilding & Marine Engineering ('DSME') covered the front page of the world's economic newspapers. The prosecutions raided the DSME, one of the top shipbuilding companies in South Korea which is the second largest shipbuilder in the world. The former CEO, Ko Jae Ho, was called for questioning regarding the accounting fraud but he denied the accounting fraud allegation of 4.6 billion USD.[1] He was indicted for accounting fraud and his first trial was held on 11th August 2016. This corporate financial affair describes the competing interest of the double-edged swords of corporation and that too much privilege for entrepreneurs or corporations will bring negative outcomes in our society. In this article, I will discuss the principle of the separate legal personality and the competing interests of double-edged sword and analyze double-edged sword on whether it is an apt analogy or not.

 


 

[1] The Korea Times,  Daewoo Shipbuilding raided for alleged accounting fraud (6 August 06 2016)<http://www.koreatimes.co.kr/www/news/nation/2016/06/116_206560.html>.

 

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