Separate legal entityCorporate personalityHouse of Lords

Salomon v Salomon & Co Ltd

[1897] Appeal Cases 2218971 min read
The case in brief30-second read
Facts
Aron Salomon incorporated his boot-making business as a company. He held 20,001 of 20,007 shares, with the remaining 6 held by family members. The company failed and unsecured creditors argued Salomon should be personally liable since he and the company were essentially the same person.
Issue
Whether a validly incorporated company with virtually one beneficial shareholder is a legal entity separate from that shareholder.
Held
The House of Lords unanimously held that the company was a separate legal person from Salomon. Its debts were its own, not Salomon's. The company was not his agent or trustee. Valid incorporation creates a distinct legal personality regardless of the number of shareholders or degree of control.
Principle
Upon valid incorporation, a company is a separate legal person distinct from its members, even if one person holds virtually all shares
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Facts

  • Aron Salomon incorporated his boot-making business as a company.
  • He held 20,001 of 20,007 shares, with the remaining 6 held by family members.
  • The company failed and unsecured creditors argued Salomon should be personally liable since he and the company were essentially the same person.

Issue

  1. Whether a validly incorporated company with virtually one beneficial shareholder is a legal entity separate from that shareholder.

Held

  • The House of Lords unanimously held that the company was a separate legal person from Salomon. Its debts were its own, not Salomon's. The company was not his agent or trustee. Valid incorporation creates a distinct legal personality regardless of the number of shareholders or degree of control.

Ratio decidendi

Upon valid incorporation under the Companies Act, the company is a legal person separate from its members. Its liabilities are its own. Members enjoy limited liability: liable only to the extent of unpaid share capital. One-person control does not destroy separate personality.

Exam use

How to use it in an answer

The most important case in company law. Establishes that incorporation creates an absolute legal separation between company and members: the foundation upon which limited liability, corporate property, and the entire edifice of company law rests.

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Citation

Salomon v Salomon & Co Ltd [1897] Appeal Cases 22

Reported: [1897] Appeal Cases 22. This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.