Premium Essay

Salomon V. Salomon Case


Submitted By Nazim
Words 1040
Pages 5
Salomon v. Salomon & Co. [1897] A.C. 22 (H.L.)

Salomon v. Salomon & Co. (1896), [1897] A.C. 22 (H.L.) is a foundational decision of the House of Lords in the area of company law. The effect of the Lords' unanimous ruling was to firmly uphold the concept of a corporation as an independent legal entity, as set out in the Companies Act 1862.
| |


Aron Salomon was a successful leather merchant who specialized in manufacturing leather boots. For many years he ran his business as a sole proprietor. By 1892, his sons had become interested in taking part in the business. Salomon decided to incorporate his business as a Limited Liability Company, Salomon & Co. Ltd.

At the time the legal requirement for incorporation was that at least seven persons subscribe as members of a company i.e. as shareholders. The shareholders were Mr. Salomon, his wife, daughter and four sons. Two of his sons became directors; Mr. Salomon himself was managing director. Mr. Salomon owned 20,001 of the company's 20,007 shares - the remaining six were shared individually between the other six shareholders. Mr. Salomon sold his business to the new corporation for almost £39,000, of which £10,000 was a debt to him. He was thus simultaneously the company's principal shareholder and its principal creditor.

When the company went into liquidation, the liquidator argued that the debentures used by Mr. Salomon as security for the debt were invalid, on the grounds of fraud. The judge, Vaughan Williams J. accepted this argument, ruling that since Mr. Salomon had created the company solely to transfer his business to it, the company was in reality his agent and he as principal was liable for debts to unsecured creditors.

The Appeal:

The Court of Appeal also ruled against Mr. Salomon, though on the grounds that Mr. Salomon had abused the privileges of incorporation and limited liability,

Similar Documents

Premium Essay

Company Law

...In the Salomon v Salomon & Co Ltd (1897), Mr. Aron Salomon, he is an operator to make the boots and shoes. His son wants to be his business partner, so Mr. Salomon business into a limited company. Then according to the company law, set up a company to be at least 7 shareholders holding at further 1 share each. So, Mr. Salomon gave himself a shares, also gave him a share of his wife and five children. Mr. Salomon company 20007 shares, but he holds 20001 shares, and his family members each have a share. With the passage of time, Mr. Salomon's company faces the difficulty. In order to raise funds, and also the company, Mr. Salomon sold its own debt to Benedick. To raise the money but can't let company to prevent more problems, because the money is used for business. Creditors discovered the money just can be used to repay the debt creditors holding it, it's considered a secured creditor. This event will be brought to the court or the Supreme Court. They all think that creditors cannot recover their entire debt contract with the company, so not with Mr. Salomon. After a series of the appeals, it is considered by Salomon v Salomon & Co Ltd is a company, with separate legal personality qualification, so also can’t say Mr. Salomon owned by the company. The company and Mr. Salomon have two legal persons in the law. So it is has the right to enter into a contract. The principle in Salomon are a company must be an independent legal person, but from other members or shareholders...

Words: 1005 - Pages: 5

Premium Essay

Lifting the Veil

...Introduction According to Salomon v Salomon& Co Ltd , the fundamental attribute of separate legal entity is that the company is regarded as a legal person distinct from any and all of the individuals involved in the company by incorporation of a projected or existing enterprise. Under s15(1) of the Companies Act 2006, companies which are registered become incorporated and separate legal persons on registration. As a consequence of the existence of a distinct legal entity, a company has the capacity to be a party to a contract, sue or being sued, commit a crime, be the victim of a crime, hold property, and rationally, thus, make profits and losses that are its own rather than those of the shareholders of the company. The Principle of Separate Legal Personality The importance of the corporate personality which was created by statute in the first half of the nineteenth century was not fully appreciated until the well-known case of Salomon. This case firmly established the operation of the concept of the separate legal personality of a company under the Companies Act of 1862 and this principle is still existed in the Companies Act of 2006 today under the UK Company Law. The Salomon case makes it clear that it is possible for a sole trader owner to transfer a small business into a registered company and hence separate himself from the liabilities of the business. In this case, Salomon carried on a boot and shoe manufacturing business as a sole proprietor. In 1892, he registered...

Words: 3282 - Pages: 14

Premium Essay

Law 200

...Hasnaine Sakib ID- 111 0261 030 LAW 200 Section: 07 Date of Submission July 15, 2014 Contents TABLE OF CONTENTS Objective 3 Introduction 3 Company’s Classification and Characteristics 3 Separate legal personality 4 Consequences of treating the company as a separate legal entity: 5 Company has a Distinct Entity from its Members 6 Agent & Trustee 6 Directors 6 Analysis to the Leading Cases 7 Salomon v. Salomon & Co. 7 Lee and Lee’s Air Farm’s Ltd 8 Macaura v. Northern Assurance Co Ltd 8 DHN v Tower Hamlets London Borough Council 9 Lubbe v Cape Plc [2000] 9 Some Other Famous Cases: 10 Paul v. Virginia (1869) 10 Berkey v. Third Avenue Railway Co 10 Adams v Cape Industries plc [1990] 10 Walkovszky v. Carlton 10 Findings 11 Conclusion 11 Bibliography 12   Objective ‘’A company is distinct from its members. Directors are neither agents nor trustees of a company’’ The purpose of this Assignment is to analyze the legendary statement made by Lord Mac Naughton during the Salomon vs Salomon case on corporate personality, in the lights of some leading cases. The statement of Lord Mac Naughton was “The Company is at law a different person altogether from its members, the company is not in law agent of the subscribers or to the trustees of them”. Introduction A company is a legal entity that is separate and distinct from its members and shareholders and can act as a single person. When a company is formed, it is said to have become "incorporated". However...

Words: 3514 - Pages: 15

Premium Essay

Law Case

...shareholders of the company personally liable for the obligations of the corporation. The veil policy is raised when shareholders shape the distinction between the corporation andthe shareholders. It is an important aspect of the law that although it is a separate legal entity, a company or corporation can only act through human agents that it is comprised of.Under the company law or corporate law, a corporation is specifically referred to as a legal person who is a subject to rights and duties and is capable of owning real property, entering into contracts, and having the ability to sue and be sued in its own name. Also, if we want to state a corporation in different way then we can say that a corporation is a juristic person that in most cases is legally treated as a person, and empowered with the attributes to own its own property, execute contracts, as well as ability to sue and be sued. Under the eye of law, there can be two types of person, (1)...

Words: 2896 - Pages: 12

Premium Essay

Company: a Corporate Personality

...and heartiest gratitude to our course instructor of BUS 361Md. K.I.M.MANZUR-E-MAWLA, Adjunct Faculty, Department Of Bachelor of Business Administration, East West University. Without him, preparing this report would be simply impossible for us. We also like to thank our seniors and classmates to giving advices and reliable information. We are paying our hearties appreciation to all of these people for their great co-operation, which will be always remembered by us. Letter of transmittal 22 April, 2010 K.I.M.MANZUR-E-MAWLA Adjunct Faculty Department of Business Administration East West University Dear Sir For the purpose of understanding the company law and corporate personality in the real life scenario and what are the cases that influence the company law. Therefore we have prepared a report on Company: A Corporate Personality. It is our honor to transmit to you the report and grateful to you for giving us the chance to prepare this report being a part of course works Legal Environment of Business (BUS 361). In spite of various limitations, we did our best to put rational analysis in this report through our collective effort. We hope that you will find some...

Words: 3402 - Pages: 14

Premium Essay


...becomes a legal person in law and assumes a corporate personality, in the case of Salomon v. Salomon Co., where Salomon had a leather merchant, he later decided to convert the business into a limited company and for this purpose Salomon & Co. was formed with Salomon, his wife and five of his children as members, and Salomon as Managing Director. He took all the shares of the company except six which was distributed to his family. Part of the payment for the transfer of the business was made in the form of debentures (a secured loan) issued by the company to Salomon. The Company ran into difficulties a year later, a receiver was appointed and the company went into liquidation. Its assets were sufficient to discharge the debentures but nothing was left for the unsecured creditors. The Court of Appeal held that the whole transaction was contrary to the intent of the Companies Act and that the company was a mere sham and was in reality and agent of Salomon, who was the real proprietor of the business. On further appeal, the House of Lords reversed the decision holding that the company was validly formed and that the business belonged to the company and not Mr. Salomon and that the company was in law a different person altogether from subscribers . The company is an artificial person entirely separate from those who have created it and as no fraud has been found to have been perpetuated on creditors, Mr. Salomon could be allowed to claim. Where companies fail to...

Words: 797 - Pages: 4

Premium Essay


...Table of Contents Introduction 2 Case study- fact 3 Salomon v A. Salomon and Co. Ltd. (1897) AC 22 3 Effects in incorporation 4 1. Perpetual Succession 4 • The case of Re Noel Tedman Holdings Pty Ltd. (1967) QdR 561: 4 2. Business property 4 • In the case, Macaura v Northern Assurance Co. Ltd. (1925)AC619: 4 3. Limited liability 5 The veil of incorporation 5 Judicial lifting 6 1. Public interest 6 2. Fraud 6 3. Agency 7 4. Group enterprise 7 Statutory lifting 7 1. Membership numbers 7 2. Misdescription 8 Trading 8 1. Fraudulent 8 2. Wrongful 8 3. Taxation 8 4. Dividend payments 9 Conclusion 9 References: 10 Introduction An organization is a legal entity by itself. Under Companies Act 1965, it expresses that a incorporated organization is a corporate that has a separate legal entity or simulated lawful individual and exists freely. in other terms, an organization is existed independently from the individuals, officers, workers and the proprietor of the organisation. An organization is made when it is enrolled under the Companies Act. It appears from the date specified in the endorsement of joining. It might be noted in this association that Section 11 gives that a relationship of more than ten persons carrying on business in keeping money or an affiliation or more than twenty persons carrying on some other kind of business must be enlisted under the Companies Act and is regarded to be an illicit affiliation...

Words: 2808 - Pages: 12

Premium Essay


...However, a partnership business must be registered with the Registrar of Businesses. While the company’s memorandum and articles of association are lodged with the Registrar of Companies (“ROC”) III. Third is the number of members. Private Limited Company shall have at least 2 members and maximum 50 members. But for a public company are at least 2 members with no limitation. Partnership firm shall have at least 2 members and maximum 20 members and for banking business, maximum 10 members excluding lawyer firm, accounting firm, and architectural. . IV. Fourth is the Constitution. Partnership agreement binds only the partners while a company’s affairs are governed by Articles of Association and Memorandum of Association. V. Fifth is the liability. For a partnership company, Section 11 – Every partner is jointly liable with his other partners for all debts of the firm incurred while he is a partner. Section 12, 13 and 14 – Every...

Words: 1872 - Pages: 8

Premium Essay

Company, Sole Trader or Partnership

...Company, Sole Trader or Partnership | Law 102 | 1. Sole Trader “A sole trader business is one which is fully owned by one individual. Although the owner can employ other staff, the owner retains full responsibility and ownership for the business.” (Admin. (2009). Definition - Sole Trader. ) The advantages of this type of business include no legal filing requirements or fees, as well as no professional advise for the set up of the business; you literally go into the business on your own. Simplicity is also an advantage because there is only one person running the business; there is no need for a complex organizational structure where there might be miscommunication and misunderstanding. The disadvantages to a sole trader business are the unlimited liability for the debts of their business; there is no difference between the sole trading business and the sole trader himself, meaning that they are personally liable for all the debts of the business. In addition, it is not a useful way for raising capital, and the capital must be provided through personal savings or bank loans. 2. Partnership A partnership is a business made up of two to twenty people. Similar to a sole trader, the partners involved have unlimited liability for the debts of their business. Each partner is liable jointly with the other partners in the firm. There are several advantages and disadvantages to being involved in a partnership. One of the advantages to becoming involved in a partnership...

Words: 1310 - Pages: 6

Premium Essay

Importance of Sle and Veil Lifting of Corporation in Malaysia which begins with the two or more people association as they use their names to become the subscriber in memorandum and all requirement of the registration are complied. Hence, then the company is formed, then it’s called “incorporated”. After being issued with a certificate of incorporation, a company has a legal status separate from the members. In law, the company is treated as a person. Whatever happen in the company, the members of the company should not receive any impact as it was distinguished from company. Wrong done to the company may be vindicated by the company. The most important decision ever made by the English courts in relation to separate legal entity was adopted in the case of Salomon v Salomon[1897] and also accepted in Malaysian company law. In this case, Salomon was sole proprietor who runs the business of a boot merchant by himself. He later converted his business into limited...

Words: 2289 - Pages: 10

Premium Essay

Case of Saloman vs. Saloman Co. and Case of Macaura vs. Northern Assurance Co.

...Introduction: Companies are the dominant form of business association. The fundamental concept of company law was developed based on a case decided more than 100 years ago in the UK’s House of Lords. The case of Salomon established a maxim that a company is a separate legal entity distinct from its members. When a company is formed, it is said to have become “incorporated”. Thus it is a separate legal entity or a legal ‘person’ it has features that have given a company certain capabilities under the realm of law. The capabilities would include employing personnel, making contract, owning property, paying taxes and so on. A company can also sue and can be sued. Under the eye of the law, anything that is capable of rights and duties is a person and thus has a personality. Persons can be of two types under the eye of law (i) natural persons and (ii) artificial persons. Natural persons are human beings and artificial persons are those created for the purpose of laws known as corporations or companies. As soon as a company is registered under the company act, it attains the status of a person that can buy, lend money, file and defend suit, sell goods and hold property. One of the major features of a corporation from the very beginning is that the owners/shareholders enjoyed limited liability, which means, the owners were not liable for the debts of the company. Before the industrial Revolution it was only the persons who could be sued or sue. Thus, when a corporation breached a...

Words: 2470 - Pages: 10

Premium Essay

Send Gift to Your Friends

...misinterpretation by the other party. Misinterpretation is as the defence if the innocent party is sued for damages or specific performance by the other party. Under the Sale of Goods, the innocent party has the rights to cancel off the contract when there is a breach of implied condition as to title, correspondence with description, merchantable quality, fitness for purpose and sale by sample corresponding to those implied in contract of sale. Restitution is sometimes referred as quasi-contract. Quasi-contract is a contract created by courts. Quasi contract is actually not a legal contract but it is actually a legal substitute which is formed to impose equity between the two parties. It does not rely on the plaintiff, person who brings a case against another in a court of law, who is suffering from loss or damage. It will be very unfair if the defendant is allowed to retain the goods and services without payment. Damages are award which mostly will be money paid as a compensation for a loss or injury. The innocent party in the contract will receive monetary compensation for the breach of the contract from the party who is responsible for the...

Words: 5794 - Pages: 24

Premium Essay

Legal Personality of a Limited Company

...------------------------------------------------- ------------------------------------------------- DEPARTMENT OF ADMINISTRATION ------------------------------------------------- ------------------------------------------------- Course: Company Law ------------------------------------------------- ------------------------------------------------- Assignment: Discussing the Legal personality of Companies ------------------------------------------------- ------------------------------------------------- Submitted to: ------------------------------------------------- ------------------------------------------------- Submitted by: Paclin ------------------------------------------------- ------------------------------------------------- Date Submitted: 25th March 2014 ------------------------------------------------- ------------------------------------------------- Lord MacNaughten stated that, “The company is at law a different person altogether from the subscribers to the memorandum: and although it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustees for them”. The significance of what Lord MacNaughten stated starts to raise some of the important values of modern company law. I do agree the separate legal personality of a company is usually the explanation as to why...

Words: 679 - Pages: 3

Premium Essay

Company Law Issues

...assets. Issue: Whether Sue can enforce her charge [security interest] against Bling Bling Pty Ltd ? Relevant case: 
Under corporate law, there is a rule of separate legal entity explained in the case of Salomon v Salomon & Co Ltd. Once a company is incorporated, there will be a distinction between private and company’s debts and assets, a company can contract with its members and a company can be liable in tort to a member. As seen in the final decision in the famous case of Salomon v Salomon & Co Ltd, “…once the company is legally incorporated it must be treated like any other independent person with rights and liabilities appropriate to itself…” Application: In this case, because of there is no fraud so the company is a separate legal entity. The debenture given by the company is valid, thus, Ms. Sue should succeed in her claim against the company in her capacity as a secured creditor with priority payment for company’s debt owed to her. (b) Fact: Ms. Sue sold her company and took out an insurance policy in her name to cover the goods against fire and theft. After burglars broke into the premises of ‘Bling Bling Pty Ltd’ and stole stock valued at $500,000, Good Luck Ltd refused Amy’s claims for the stolen stock at ‘Bling Bling Pty Ltd’. Issue: Whether Sue can enforce the claim against Good Luck Ltd? Relevant case: In the case of Macaura v Nothern Assurance Co Ltd (1925), Mr. Macaura sold his company and took out an insurance policy in his name to...

Words: 1530 - Pages: 7

Premium Essay

Capstone entity,” (Hicks and Goo 2008, 95) and under its own name, the company has the power to own properties and to sue or be sued (Hicks and Goo 2008, 95). Based on s 114 of Corporations Act 2001 (Cth), the company needs a minimum of one director and member in order for it to be constituted; a proprietary company can have the same person as a director and as a shareholder. The single director can exercise all the powers entitled to the company, such as to loan money and issue shares, but there are exceptions, which can be executed by holding a general meeting as cited in the Act or the constitution of the proprietary company (s 198E(1), Corporations Act 2001 (Cth)). The separation of the company as a legal entity is highlighted in Macaura v Northern Assurance Co Ltd [1952] AC 629. Macaura was an owner of a timber plantation and then established a company and sold his business to the company without transferring the insurance policy. The timber was devastated by fire, and Macaura demanded the insurance company to pay the damages. However, the court cited that Macaura and the company are two separate legal entities, and with that, the timber was already an asset of the company, which was not insured, citing that the insurance company is not liable for damages of the timber plantation. One of the powers of the director of a proprietary company is to secure a loan from creditors, which are secured and unsecured creditors. Loans from secured creditors are procured loans with security...

Words: 1854 - Pages: 8