Salomon v salomon & co.Ltd.

Salomon v Salomon & Co Ltd.

1. Salomon v Salomon & Co Ltd Student Name : Reem Kattach Supervisor: Dr.Rehana Parveen College of Law Prince Sultan University

2. Outline: Facts. Issue. Judgment. The Principle of Separate Legal Entity.

3. Facts: Aaron Salomon was a leather trade man, has a sole proprietorship business. 1892, he incorporate with his sons as a limited company. Any limited company, should have at least seven persons who considers as members of a company “shareholders”. Salomon himself as a managing director, his wife, his daughter, and his four sons.

4. The company purchased for £39,000, taking £10,000 of them as a debt to him also at the same time he was thus simultaneously the company's principal creditor and its principal shareholder. On the security of his debentures, Mr. Salomon received an advance of £5,000 from Edmund Broderip . . shares were divide as: 20,001 shares for Mr. Salomon, and each other subscribe take one share, each one share worth £1. There were a decrease on the sales, “strike” .

5. Salomon business failed. October 1893, Edmund Broderip sued Salomon to enforce his security, which make Salomon pay back the £5,000 of Edmund Broderip . The liquidator also argued that the debentures used by Mr. Salomon as security for the debt were invalid, he just fraud on them. The liquidators sued Mr. Salomon, since he was the one who is taking the responsibility over the company.

6. Issue: Whether Mr. Salomon is liable for the debt personally?

7. Judgment: High Court: make a decision against Mr. Salomon. He said that since Mr. Salomon was the creditor of the company from the beginning as sole proprietorship, and even if he changed the form of the company to limited company, it still his company because he has the biggest part of shares, and the other subscribes are just names and nothing else.

8. Judgment: Appeal: They confirmed what was said in the high court

9. Judgment: House of Lords: The judge rejects the argument of agency and fraud. 1. The law was clear and consist that to form a limited company you should have at least seven subscribers. 2. The law doesn't mention any thing about how much should each subscriber have from the shares, so it doesn't matter if each of them have just one share or more. 3. The Principle of Separate Legal Entity.

10. The Principle of Separate Legal Entity: The Principle of Separate Legal Entity explained that each company has it is own personality which separate from it is members. Can sue, can be sued.