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SALOMON VS SALOMON & CO.

LTD.(1897)

ghanshyamgupta7@gmail.com

9015264601

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ABSTRACT OF THE CASE

Mr Aron Salomon was a leather boot and shoe manufacturer. He had a wife, a daughter and five sons.

Converted his business into a limited co.

Company purchased the business of Solomon at 40000 pound.

Purchase consideration was in terms of 10000 debenture, 20000 equity share and 10000 was in cash

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Mr. Salomon took 20,001 shares out of the company's 20,007 shares. And his wife and all the son and a daughter took one share each .

The wife and five elder children became subscribers and two eldest sons also directors.

Realized value of all the assets was 6000 pound.

Value of all the creditors is 17000 pound out of which 10000 was secured, held by Mr. Salomon & rest are unsecured.

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LIQUIDATION OF SOLOMON CO. The business of the company

collapsed in the depression and the company went into liquidation after a year.

The assets of the company is not sufficient.

Nothing was left for unsecured creditors

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The unsecured creditors sued Salomon and they contended that Salomon & Co. Ltd was a fraud and contrary to the meaning and intent of the Companies Law.

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SEPARATE LEGAL ENTITY

A separate legal entity refers to a legal entity with accountability.

SLE legally separate business from individual or owner

Like limited liability company or a corporation

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CONTD…. It is a better form of existence

for the reason it takes its responsibilities itself, owners are free from their personal liabilities and owners enjoy limited personal liability (risk) only up to their investments in stocks, though there may be certain situations where their personal responsibilities can exceed from limited liability concept.

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VERDICT BY HOUSE OF LORDS

The House of Lords did not find any form of fraud or deliberate abuse of the corporate form.

on the contrary Salomon was a victim in that he did his best to rescue his company by cancelling the debenture he took and raising them to an outside creditor who provided fresh loan capital.

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This honesty and good faith on the part of Salomon prevented him from indemnifying the company creditors. The House of Lords found there is a legal entity properly formed and there was no use of lifting the veil between Salomon and his company. the business belonged to it and not to Mr Salomon.”

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As a result of the Court of Appeal refusal to recognize the existence of the legal entity.

And regarding the company instead as a myth and fiction, they thought that the business belonged to Aron Salomon.

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CONCLUSION The House of Lords found that

honesty and good faith on Salomon’s part prevented him from assuring the company creditors as they knew they were dealing with a legal person totally different from his incorporators. Limited liability at that time was also available to sole traders and large investors who wanted some form of limit on their undertakings.

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REFERENCE

www.hpb.usm.my/aziz/company.doc (23-01-10 at 8.30 pm).

www.docstoc.com/docs/7624612/company (22-01-10 at 8.45 pm).

www.slideshare.net (25-01-10 at 8.50 pm).

www.coursework.info (23-01-10 at 9.30 pm).

Mercantile Law by Avatar Singh.