Case Brief: Salomon v Salomon
Case Brief: Salomon v. Salomon & Co. Ltd. (1897) AC 22
Facts:
Mr. Aron Salomon was a leather boot and shoe manufacturer.
He incorporated his business into a limited company called Salomon & Co. Ltd.
Mr. Salomon held most of the shares, while his family members held a few shares to meet legal requirements.
Salomon sold his business to the company in return for shares and debentures.
Later, the company went into liquidation.
Creditors claimed Mr. Salomon should be personally liable for the company’s debts, arguing that the company was just his "agent" or "alter ego."
Legal Issue:
Whether the company and Mr. Salomon are separate legal entities.
Can Mr. Salomon be held personally liable for the company’s debts?
Judgment:
The House of Lords held that the company is a separate legal entity distinct from its shareholders.
Mr. Salomon was not personally liable for the company's debts.
The company had been properly incorporated under the Companies Act.
The company alone was liable to creditors, not Mr. Salomon.
Principle Established:
Separate Legal Entity Doctrine:
A company, once legally incorporated, is a distinct legal person from its members/shareholders.
Importance:
It protects shareholders from personal liability beyond their investment.
Enables businesses to raise capital with limited personal risk.
Prevents creditors from claiming shareholders’ personal assets for company debts.
Exceptions (developed later):
Lifting the Corporate Veil: Courts can look beyond the separate entity in cases of fraud, sham, or improper conduct, but Salomon remains the primary rule.
Summary Table
| Aspect | Details |
|---|---|
| Case Name | Salomon v. Salomon & Co. Ltd. |
| Court | House of Lords (UK) |
| Year | 1897 |
| Legal Issue | Company’s separate legal entity & liability |
| Decision | Company is separate; no personal liability |
| Key Principle | Separate legal entity of company |
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