The "separate legal entity" doctrine, established by the case Salomon v. Salomon & Co. Ltd, holds that a company is a distinct legal person, separate from its owners (shareholders) and those who manage it (directors). This means the company can own assets, incur debts, sue, and be sued, independently of its members. In Salomon v. Salomon, the House of Lords affirmed that a company is a separate legal entity, even when owned and controlled by a single person, like Mr. Salomon.

The 'separate legal entity' doctrine means that a company has a distinct legal identity separate from its shareholders, directors, or founders. This concept was firmly established in the landmark English case Solomon v. Solomon & Co. Ltd. (1897). In this case, Mr. Solomon formed a company and sold his own business to it, becoming a major shareholder and creditor. When the company went into liquidation, creditors argued that Mr. Solomon should be personally liable for the company’s debts. However, the House of Lords held that the company was a separate legal person, and Mr. Solomon could not be held personally responsible for its liabilities.

This case laid the foundation for modern corporate law, establishing that once a company is incorporated, it is independent from its members, can own property, incur debts, sue and be sued in its own name. The doctrine ensures limited liability for shareholders but can be bypassed by courts in cases of fraud or misuse through the concept of “lifting the corporate veil.”