Business law Essay Example | Topics and Well Written Essays - 1500 words - 18

Business law - Essay Example This move to liquidate the company led to the case at hand since the unsecured creditors claimed that the company did not clear its debts before it became insolvent. Salomon claimed that he did not owe anyone since the company is a separate legal person as indicated in the company rules thus no shareholder is responsible for any debts of the company. The creditors filed a case against Salomon claiming that although the company had been incorporated Salomon held almost all the shares thus he should be responsible for the debts by the company. The court discredited these assumptions since the incorporation was proper and abide by the company’s rule thus the number of shareholders did not change the fact that this was a limited company and no longer a sole proprietorship. This was one of the most heated cases at the close of the 19th century, but Lord Mac-Naghten claimed that the law governing the limited companies had to be followed. He stated that in any company’s liquidation, the creditors should be given preferential claims of assets but since this was not the case in the liquidation of the company. The law at the time did not state anything of the sort, and the debenture holders had claimed everything from the liquidation (Campbell, 2007). This rule is under Companies Act section 6 formed in 1862. It claims that seven or more people can join and form a company under it. This rule was made to end frauds from unregistered limited companies (Campbell, 2007). This law states that a limited company is a separate legal person can sue or be sued. This means that any malicious activity or fraud cases associated with the company, the plaintiff can only sue the company but not the shareholders. The company is also mandated to sue anyone violating its rights, since this rule has made it an artificial person who is recognized by the law. Over the years, the Companies Act has been amended to ensure that the shareholders and directors of the companies