Salomon v A Salomon & Co Ltd
A company is a separate legal person from its members, even where one person owns almost all the shares, so the members are not liable for its debts.
Facts
Aron Salomon, a leather merchant and boot maker, sold his business to a company he had formed, A Salomon & Co Ltd, for about £39,000. Mr Salomon held 20,001 of the 20,007 shares, and members of his family held one share each, as the Companies Act 1862 required seven members. Part of the price was paid by debentures, secured on the company's assets, which were issued to Mr Salomon. The business failed, and the company went into liquidation. The liquidator argued that the company was merely Mr Salomon's agent, so he should indemnify it against its debts, and that his debentures should not have priority over the unsecured creditors.
Legal principle
The House of Lords held that the company was a separate legal person, and that Mr Salomon was not liable for its debts. Lord Macnaghten said that the company is at law a different person altogether from the subscribers to the memorandum, and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. The company had been validly formed in accordance with the Act, and Mr Salomon was entitled to enforce his debentures as a secured creditor.
Related cases on separate legal personality and the corporate veil
- Adams v Cape Industries plc [1990] Ch 433
- Chandler v Cape plc [2012] EWCA Civ 525, [2012] 1 WLR 3111
- Re Darby, ex p Brougham [1911] 1 KB 95
- DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852
- Gilford Motor Co Ltd v Horne [1933] Ch 935
- Jones v Lipman [1962] 1 WLR 832
- Lee v Lee's Air Farming Ltd [1961] AC 12
- Macaura v Northern Assurance Co Ltd [1925] AC 619
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