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Salmon vs. Salomon

  1. Salomon vs. Salomon BY: Syed Junaid Ali Shah
  2. Outline of Salomon vs. Salomon • Background • Facts of Salomon vs. Salomon • Characteristics of a company • Conclusion
  3. Background • Aaron Salomon was a successful leather merchant who specialized in manufacturing leather boots. For many years he ran his business as a sole trader. • By 1892, his sons had become interested in taking part in the business. Salomon decided to incorporate his business as a Limited company, Salomon & Co. Ltd.
  4. Background • At the time the legal requirement for incorporation was that at least seven persons subscribe as members of a company i.e. as shareholders. Mr. Salomon himself was managing director. • Mr. Salomon owned 20,001 shares of the total 20,007 shares • The remaining six were shared individually between the other six shareholders (wife, daughter and four sons). • Mr. Salomon sold his business to the new corporation for almost £39,000, of which £10,000 was a debt to him.
  5. Facts of Salomon vs. Salomon • High Court: In the High Court, Mr Salomon lost the case and was ordered to pay the debts. This decision was founded in the idea that the company was his nominee or agent. • The appeal: Mr Salomon appealed the decision, where he once again lost the case.
  6. Characteristics of a Company • Separate Legal Entity: The company is distinct and different from its members in law. It has its own seal and its own name, its assets and liabilities are separate and distinct from those of its members. • Limited Liability: He liability of the members of the company is limited to contribution to the assets of the company up to the face value of shares held by him.
  7. Characteristics of a Company • Perpetual Succession: Membership of a company may keep on changing from time to time but that does not affect life of the company. Insolvency or Death of member does not affect the existence of the company. • Separate Property: The company's property is its own. A member cannot claim to be owner of the company's property during the existence of the company.
  8. Characteristics of a Company • Transferability of Shares: Shares in a company are freely transferable. • Common Seal: A company is an artificial person and does not have a physical presence. Thus, it acts through its Board of Directors for carrying out its activities and entering into various agreements.
  9. Conclusion • There is no doubt that the decision in Salomon’s case established the separate legal personality of a company, allowing shareholders to carry on trading with minimal exposure to the risk of personal insolvency in the event of a collapse • This is largely due to the fact that this is an area where case facts and personal views of judges have a bearing on the outcome.