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English decisions as guidance and to a certain extent to treat them as if they are still
binding.
5.2.2 Differences between Limited Liability and Separate Legal Entity
It is worthwhile to note that „limited liability‟ and „separate legal entity‟ are two
different concepts and can exist independently of one another. As mentioned earlier,
limited liability is a concept where a shareholder is only liable to contribute up to the
amount of unpaid shares in the event that the company becomes insolvent. On the
other hand, separate legal entity refers to the company as another entity; separate
from its shareholders. As such, the principle allows directors, managers and those
involved in the management of the company to be insulated from liability since the
company will be the one responsible for the liability.
It was often thought that incorporation entails separate legal entity, though
historically there was no mention of this notion until the decision in Salomon v
Salomon & Co Ltd. 34 Initially, incorporation of a company only created a corporate
personality and the company was still identified with its members, which was clear
from the wording of the sections and decided cases. 35 Over time, through legal
evolution, both separate legal entity and limited liability are now known to be the
legal consequences of incorporation. 36 The said principle was the cause of the
changing economic and legal nature of the joint stock company share. 37
34 [1897] A.C. 22.
35 Paddy Ireland, Ian Grigg-Spall and Dave Kelly “The Conceptual Foundations of Modern Company
Law” (1987) 14 JL& Soc‟y 149 at 150-151.
36 See for example section 16(5) of the Malaysian Companies Act 1965.
37 Ireland, Grigg-Spall and Kelly above n35 at 150-151.
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