Broad Definition and History Of The Legal Entity
The concept of a separate legal entity has existed for more than 500 years. The development of the company’s personality was created by the case of Salomon v A Salomon and Co Ltd.[1] which is playing an important role. Later on, companies can now own and sell property just like a real person. Also as a legal person; they can sue parties and also can bring a case.
The history of corporation is based on very old times. When looked back, it is seen that the companies were not for commercial purposes but were established for religious and church institutions in Europe in middle ages. These institutions received their powers by the local lords and by the statutes given by the kings. These organizations called charters and they were created with the aim of holding properties. These institutions, which had the privilege of the royalty, were not subject to heavy taxation. After the 16th century, the scope of the charters property acquisition expanded and became part of including hospitals, universities and colleges. But until then, these organizations were not used for commercial purposes.[2] Individuals such as kings and bishops were included in these companies. These were known as sole corporations. The purpose of this corporation was to publicly disclose that these properties were not owned by the individual and that the contracts were not made on behalf of the individual.[3] All these companies were known as aggregate corporations and for the first time in the 17th century, charters were used for commercial purposes.[4]
With the passing of time, the charters expanded with the local authorities and became the commercial organization called guilds of merchants. The changing balance of power between the throne and the parliament was also reflected in the structure of the charters. In this way, the charter’s privilege was subject to the approval of the parliament. At the beginning of the 18th century, these companies had an active market for the trading of shares. However, in the so-called South Sea Bubble, state’s incompetent sanctions and insecurity caused markets to collapse and many charter crashed as a result. These charters, which could not be fully regulated and framed, were put under pressure by the state and certain rules that are still in use today are passed through parliament. The Joint Stock Companies Act 1844 created this arrangement and defined the definition of incorporation. However, the company still held its members accountable for its debt. Thus, it was revealed that the principle of limited liability with separate legal entity will not be the same and should not be confused. With the Limited Liability Act 1855, the principle of limited liability has become an indispensable element of companies. Thus, in the last 160 years, the concept of company has increased its economic importance and created the concept of corporate law by creating its own legal field.[5]
[1] [1897] AC 22
[2] Ron Harris, Industrializing English Law, (Cambridge: University Press, 2000)
[3] Margaret M. Blair, The Four Functions of Corporate Personhood. (Vanderbilt University – Law School, Research Paper No. 12-15, 2012)
[4] Ibid
[5] Alan Dignam, John Lowry, Company Law, (9th Ed., Oxford University Press, 2016) p.15-16
