Separate Legal Entity in UK Law

We all know that in many respects a group of companies are treated together for the purpose of general accounts, balance sheet and profit and loss account. This is especially the case when a parent company owns all the shares of the subsidiaries - so much so that it can control every movement of the subsidiaries. These subsidiaries are bound hand and foot to the parent company and must do just what the parent company says.

It is “hornbook” law that a duly formed and registered company is a separate legal entity from those who are its shareholders and it has rights and liabilities that are separate from its shareholders: Salomon v A Salomon & Co Ltd [1897] AC 22; referred to by Rose LJ in Re H and others (restraint order: realisable property): [1996] 2 All ER 391 at 401F.

What then is the correct approach to distinguishing between an organ of the State and a separate legal entity? And is this distinction relevant not only to questions of immunity, but also to questions of substantive liability and enforcement? A similar recognition of their existence and separateness would be expected for purposes of liability and enforcement.

But constitutional and factual control and the exercise of sovereign functions do not without more convert a separate entity into an organ of the State. The presumption will be displaced if in fact the entity has, despite its juridical personality, no effective separate existence.

This is a helpful enumeration of factors relevant when determining whether an entity is a department or organ of State. The Board sees particular value in the propositions that the existence of State control will not be a sufficient criterion, that the possession of a range of functions coupled with independence in their exercise will militate against a conclusion that an entity is an organ, and, generally, that caution is required before treating a separate legal personality as an organ.

Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities.

As between S & R and Mr Stojevic, Mr Stojevic's fraud on the banks was and is just as objectionable as the later abstraction of monies to which it was designed to lead. In holding a director responsible in such a case, a company is as a separate legal entity enforcing duties owed to it by the director.