Salomon v Salomon

University / Undergraduate
Modified: 22nd Nov 2023
Wordcount: 289 words
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Case: Salomon v A Salomon & Co Ltd [1897] AC 22
A case that set a precedent in UK corporate law by affirming the principle of corporate personality, thus recognising companies as separate legal entities.

Facts

Mr. Aron Salomon was a successful leather merchant who established A Salomon & Co Ltd. The company was incorporated with Mr. Salomon, his wife, and children as shareholders. Mr. Salomon owned majority shares and was owed money for the sale of his business to the company. However, the company faced financial difficulties and fell into liquidation. The liquidator argued Mr. Salomon's claim for the debt owed to him by the company should be subordinated as he was, in effect, both the company and a creditor.

Issue(s)

The main issue deliberated was whether the company should be regarded simply as an agent of Mr. Salomon, or if the company was in actuality a separate and distinct legal entity. This raised questions about whether Mr. Salomon could be personally liable for the company’s debt, even though the business was incorporated.

Direction/Outcome

The House of Lords held that upon incorporation, by law, a company is a distinct and separate legal entity from its shareholders. It ruled in favour of Mr. Salomon, thereby setting the principle of separate legal personality – a cornerstone of company law. The company was not an agent of Mr. Salomon, and he was not personally liable for its debts beyond his initial investment. The ruling also solidly established the principles of limited liability and the idea of the 'corporate veil'.

(Salomon v A Salomon & Co Ltd [1897] AC 22)

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