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The liquidator and the other creditors objected to this, claiming that it was unfair for the person who formed and ran the company to get paid first.
However, the House of Lords held that the company was a different legal person from the shareholders, and thus Mr Salomon, as a shareholder and creditor, was totally separate in law from the company A Salomon & Co Ltd.
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.
But in certain exceptional cases the Court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade.
For example, the Court has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation." Appear before the House of Lords concerning the principle of lifting the corporate veil Macaura own land on which stood timber.
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.
For example, if I form a company called ‘Murphy & Co Ltd’ in which I own one hundred per cent of the shares and am a director and employee, legally speaking the company and myself are two distinct people.If a corporation is sued, then the owners will not have their personal belongings at risk unless those belongings were purchased with illegal returns from the corporation.In a sole proprietorship or partnership, the owners personally liable.In this case, a separate corporate entity was brought into existence outside the taxable territory with the ulterior motive of evading the tax obligation by the assessee mills.The Supreme Court observed: "It is true that from the juristic point of view, the company is a legal personality entirely distinct from its members and the company is capable of enjoying rights and being subjected to duties which are not the same as those enjoyed or borne by its members.