Solomon vs Solomon

Solomon vs Solomon case

1. Companies As Separate Legal Entity (Salmon Vs Salmon Case Study) Usman Ali

2. Background Forms of Business What Is Company? Company As Separate Legal Entity Conclusion Outline

3. The idea of separate legal entity was originated from the case named as Salmon Vs Salmon. The facts in this case disclosed that a company had been incorporated by Mr. Salomon in which he and members of his family were the only shareholders. The issue arises when the company’s business turns to be a failure. The value of the assets was insufficient to pay out both Mr. Salomon and the company’s other creditors. Background

4. At that time the statement of affairs’ was like this: Assets  : $ 6000 Liabilities: Saloman as debenture holder $ 10,000  Unsecured creditors $ 7,000 The unsecured creditors claimed a priority over the debenture holder on the ground that company and Saloman were one and the same person and the company was a mere agent in the eyes of law. Assets and liabilities

5. The House of Lords held that the existence of a company is quite independent and distinct from its members and that the assets of the company must be utilized in payment of the debentures first in priority to unsecured creditors. House of lord

6. The three main forms of business are Sole trader Partnership Company A major disadvantage for sole traders and partners is that they have unlimited liability for the debts of their business. Forms of Business

7. Facts Mr Aron Salomon made leather boots and shoes in a large Whitechapel High Street establishment. His sons wanted to become business partners, so he turned the business into a limited company. Mr Salomon took 20,001 of the company's 20,007 shares. Transfer of the business took place on June 1, 1892. The company also gave Mr. Salomon £10,000 in debentures (i.e., Salomon gave the company a £10,000 loan, secured by a floating charge over the assets of the company). On the security of his debentures, Mr. Salomon received an advance of £5,000 from Edmund Broderip . . Facts and figure

8. Soon after Mr. Salomon incorporated his business a decline in boot sales, exacerbated by a series of strikes which led the Government, Salomon's main customer, to split its contracts among more firms to avoid the risk of its few suppliers being crippled by strikes. The company was put into liquidation. Bordered was repaid his £5,000. This left £1,055 company assets remaining, of which Salomon claimed under his retained debentures.

9. High Court: The judge, Vaughan Williams J. accepted this argument, ruling that since Mr. Salomon had created the company solely to transfer his business to it, then the company and Salomon were one unit; the company was in reality his agent and he as principal was liable for debts to unsecured creditors. Principles

10. The appeal : The Court of Appeal also ruled against Mr. Salomon, on the grounds that Mr. Salomon had abused the privileges of incorporation and limited liability, which the Legislature had intended only to confer on "independent bona fide shareholders Principles

11. T he effects of separate legal entity are: It has perpetual existence, despite changes of its members and constitution. It can own property of any kind, and thus buy and sell property in its own name. It can be a party to a contract. It can sue and be sued in its own name. Limited liability. Transferability and transmissibility of shares. Company As Separate Legal Entity

12. Saloman’s case established new boundaries that in law a registered company is an entity distinct from its members, even if the person hold all the shares in the company. There is no difference in principle between a company consisting of only two shareholders and a company consisting of two hundred members, In each case the company is a Separate Legal Entity. Conclusion