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KOLEJ UNIKOP

COLLABORATION WITH

UNIVERSITI TEKNOLOGI MARA
FACULTY BUSINESS MANAGEMENT
DIPLOMA IN OFFICE MANAGEMENT AND TECHNOLOGY
(BM118)

SUBJECT:
PRINCIPLES OF CORPORATE COMPLIANCE
(OMT 340)

ASSIGNMENT:
GROUPING ASSIGNMENT
CASE REVIEW
CASE III: SALOMON V. SALOMON & CO. LTD. [1897]

PREPARED BY:
NAME MATRIC NUMBER
DONACELLA ANAK DIYO 2012612398
NUR FATEHA SYUHADA BINTI RAKIMAN 2012695974
SITI SUHAIDA BINTI OMAR 2012283002
FARAH HANIM BINTI HUSSIN 2012824842
NURUL NADHEERA BINTI ZULKIFELI 2012270936

PREPARED FOR:
SUHAILA NORA BINTI SULAIMAN
SUBMITTED DATE:
21 JULY 2014

his wife. This is because. he was also the secured creditor and was entitled to repayment in priority to the unsecured creditors. Ltd. his daughter and his four sons. and as being separate from its controller. Saloman was the managing Director. The debentures carried a floating charge on the assets of the company.Case III: Salomon v. Saloman and his two sons became the directors of this company. .000.000 to Saloman and Co. [1897] FACTS Mr.000 debentures and the balance in cash to Mr. a company was treated as operating the business in its own right. Thus its assets were running short of its liabilities b $11.000 Unsecured creditors $ 7. The court held that though virtually Saloman was the holder of all the shares in the company. Saloman. Salomon having the control over the company. the owner of a very prosperous shoe business. Salomon was valid and he was entitled to be paid his debt even though other creditors of the company would not be paid because the company had insufficient assets to pay all its creditors. The unsecured creditors claimed a priority over the debenture holder on the ground that company and Saloman was one and the same person and the company was a mere agent in the eyes of law. Salomon & Co. it was neither his agent nor trustee. Liabilities: Saloman as debenture holder $ 10.e. The purchase consideration was paid by the company by allotment of 23. which consisted of Saloman himself. sold his business for the sum of £ 30. After a short duration. Therefore.000.000 shares and £10. One share of £ 1 each was subscribed by the remaining six members of his family. Saloman. in this case of Mr. Salomon. the company went into liquidation. At that time the statement of affairs’ was like this: Assets :$ 6000. But 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. i. It was held by the House of Lords that despite Mr. Ltd. the charge given by the company to Mr.

Saloman’s case established beyond doubt that in law a registered company is an entity distinct from its members. . There is no difference in principle between a company consisting of only two shareholders and a company consisting of two hundred members. In Liquidation [1889]: ‘a company is a legal persona just as much as an individual'. even if the person hold all the shares in the company.Thus. it shows that a company is a legal person separate and distinct from its individual members or directors as in the words of Cave J in Re Sheffield & South Sheffield Yorkshire Permanent Building Society. In each case the company is a separate legal entity.

Consequently. It was held by the House of Lords that despite Mr. . Salomon having the control over the company. HELD/ DECISION OF COURT This case was held by the House of Lords. Salomon was valid and he was entitled to be paid his debt even though other creditors of the company would not be paid because the company had insufficient assets to pay all its creditors. Salomon and the company’s other creditors. Therefore. the creditors raised an issue whereby they argued that Mr. it was neither his agent nor trustee. Salomon should not receive the payment from the company because the degree of control he exercised over the company. The value of the assets was insufficient to pay out both Mr. the charge given by the company to Mr.ISSUES The issue arises when the company’s business turns to be a failure. Thus its assets were running short of its liabilities.

has perpetual succession. Next. Ltd. This concept also blessing in disguise as businessman like Salomon could now protect their personal asset from the company in case failure of the business. . Salomon & Co. Secondly. Salomon gets £5. firstly. Salomon and the other subscriber to the memorandum were associated was lawful. the declaration mean that Mr. was formed of the concept of the liability in additional to the corporate legal personality. This company still existence continuously until the company winding up as a sudden slow in business occurred and the company could no longer pay interests to Salomon even the wife put money. Even thought. Nothing proof to support such an accusation intention for which Mr. Ltd. Salomon being accused trickery and not honestly. Last but not least.000 for the company on debentures that belonged to him seems to usu strong evidence of his good discretion and his belief in the company. one of the main key source of separate personality it can be said that the concept of limited liability and separate personality go hand in hand. according to Company Act 1965. if the company own debts to the creditor. based on Salomon & Co. Besides. Company can own the assets and shareholders have no proprietary interest in those assets. One of the prime main goodness of the principle being set down in Salomon versus Salomon & Company Ltd. the creditors should not appoint the debts to the shareholders but the company should fully take responsible on the debts. but the company still cannot pay.OPINION In our opinion on this case. Salomon should not sell the shareholders assets because the shoe business belonged to the company and not to Salomon once the contracts were entered into between Salomon and the company. Salomon has sells the company assets and the shareholders assets too. the truth that Mr. According to Company Act 1965.