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UNIVERSITY INSTITUTE OF LEGAL STUDIES

PANJAB UNIVERSITY, CHANDIGARH

CASELAW
SALOMON v. SALOMON & Co. Ltd,1897 AC22 (HL)

Submitted To Submitted By
Dr. Alamdeep Kaur Pranav Negi

162/18 , 8th Sem

B.Com. LL.B(H)

Section C
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ACKNOWLEDGEMENT
Success is a blend of multiple efforts. The final import of this project is
also a result of the sheer hard work and constant support of many
people. I would like to take this opportunity to thank all of them.
To begin with, I would like to express my humble gratitude to my
teacher, Dr. Alamdeep Kaur for her able guidance and mentoring. The
meticulous manner in which she teaches has paid significantly in the
completion of this project.
Last but not the least, I would like to express my profound gratitude
to my friends who have constantly supported and motivated me
throughout this project.
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INTRODUCTION:
Separate Legal Personality (SLP) is the core principle on which
company law is based. Establishing how a company exists and
establishes the foundation of actions is considered, it is
perceived as, perhaps, the most profound and steady rule of
corporate jurisprudence. In contrast, the rule of “SLP” has
historically experienced and is one of the most litigated aspects
within and across jurisdictions.
However, this principle, established in the epic case commonly
known as Salomon vs. Salomon, is still very prevalent and is
conventionally celebrated as forming the core of, not only the
English company law but of the universal commercial law
governance.
The concept of separate legal personality basically states that
when a company receives a certificate of incorporation it has a
‘separate legal personality’. In law, the company becomes a
legal person it is its own right. The basic concept to be familiar
with when starting up a business is the idea that the business
itself has a legal personality in its own right, especially when it
is in the form of a limited liability company.
This essentially means that if one starts a business as a limited
liability company, then the corporation or company is a legal
entity with a distinct legal personality separate to that of the
owners, members, or shareholders. This is known as the concept
of “legal personality”.
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FACTS OF THE CASE:

1. In this case, Salomon transferred his business of boot
making, initially run as a sole proprietorship, to a company
(Salomon Ltd.), that included himself and members of his
family.
2. Salomon was paid the price of such a transfer by way of
shares, and debentures having a floating charge (security
against debt) on the assets of the company.
3. Later, when the company’s business failed and it went into
liquidation, Salomon’s right to recover (secured through a
floating charge) against the debentures stood for the claims
of unsecured creditors, which would, thus, have recovered
nothing from the liquidation proceeds.
4. To avoid such alleged unfair exclusion, the liquidator on
behalf of the unsecured creditors alleged that the company
was sham, was essentially an agent of Salomon, and
therefore, Salomon being the principal was personally
liable for its debt.
5. In other words, the liquidator sought to disregard the
distinct personality of Salomon Ltd., separate from its
member Salomon, so that Salomon would be personally
liable for the debts of the company as if he continued to
conduct business as a sole trader.
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ISSUE:
This case asserts the claims of certain unsecured creditors in the
liquidation process of Salomon Ltd., a company in which Salomon was
the majority shareholder, and accordingly, was sought to be made
personally liable for the debts of the company. Therefore, the issue was
that a shareholder/controller regardless of the separate legal identity of a
company could be held liable for its debt, over and above the capital
contribution so that such member can be exposed for unlimited personal
liability.

OBSERVATION
The principle which is derived from the Salomon Case, commonly
known as Salomon vs. Salomon & Co Ltd in which the House of Lord
held that there is a separation of liability between a company and its
shareholders, so the shareholders of a company can not be sued for the
failure or liability of its company other than their participation.
In other words, the Salomon vs. Salomon case indicated that a company
has its own legal personality that is separated from its shareholders, so
the shareholders or the members are not liable for the debts of its
company. The Salomon Principle basically gave protection to the
shareholders, directors or other company members which are
known as “Corporate Veil”.
The following principles which were laid down by the Lordships in this
case are as follows:
1. In order to form a company limited by shares, a memorandum of
Association should be signed by seven persons.
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2. Every such person should possess at least one share each.

3. If the above-mentioned requirements are complied with it hardly
makes any difference whether the signatories are relations or
strangers.
4. The company is at law a different person together from the
subscribers of the memorandum of Association.
5. The statute enacts nothing as to the extent or degree or interest
which may be held by each of the members.
6. There is nothing in the Act; requiring that the subscribers to the
memorandum of Association should be independent or
unconnected or that they should have mind or will of their own.
7. Act does not require anything like a balance of power in the
constitution of the company.

IMPLICATIONS:
Commencing with the Salomon case, the rule of SLP has been followed
as an uncompromising precedent in several subsequent leading cases
such as Macaura v Northern Assurance Co. , Lee v Lee’s Air Farming
Limited and the Farrar case.
The legal imagination of the corporate veil, thus established, indicates
that a company has a legal personality that is separate and independent
from the identity of its shareholders. Therefore, any rights, obligations or
liabilities of a company are discrete from those of its shareholders,
where the latter are responsible only to the extent of their capital
contribution, known as “limited liability”. This corporate fiction was
formulated to enable groups of individuals to pursue an economic
purpose as a single unit, without exposure to risks or liabilities in one’s
personal capacity.
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Accordingly, a company can own property, execute contracts, raise debt,

invest and assume other rights and obligations, independent of its
members. Moreover, as companies can then sue and be sued on its own
name, it facilitates legal course too. Finally, the most important result of
SLP is that a company survives the death of its members.

JUDGEMENT:
A company is a separate legal entity separate from its members and so
insulating Mr. Salomon, the founder of Salomon and Company, Ltd.,
from personal liability to the creditors of the company he founded
himself. The court also upheld firmly the doctrine of corporate
personality, as laid down in the Companies Act 1862, the Court also
firmly upheld the principle of corporate personality, so that creditors of a
bankrupt company would not have to sue the company’s shareholders to
pay off the outstanding debt.
The Court of Appeal declared the company to be a myth, reasoned that
Salomon had incorporated the company contrary to the true intent of the
Companies Act, 1862, and the latter had conducted that the business as
an agent of Salomon, who should be responsible for the debts incurred
during such agency.
However, the House of Lords, on appeal, reversed the aforesaid
judgement, and unanimously held that, as the company was duly
incorporated, it is an independent person with its rights and liabilities
appropriate to itself, and that “the motives of those who took part in the
promotion of the company are absolutely irrelevant in discussing what
those rights and liabilities are about”. Thus, the legal fiction of the
“corporate veil” between the company and its owners/controllers was
strongly created by the Salomon vs. Salomon case.
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CONCLUSION:

In conclusion, all in all, the Salomon ruling remains predominant and

continues to underpin English company law. I think that however, that
judges have different views in terms of different circumstances such as
single companies as established in Salomon’s case to groups of
companies by a comparatively recent decision of the Court of Appeal in
the case Adams v Cape Industries, it is not necessarily becoming
increasingly difficult to predict in a case, whether the courts will or will
not follow the principle of separate corporate personality as confirmed in
Salomon vs. Salomon case.
However, I do feel that the veil of incorporation, even though not lifted
at times, is becoming more ‘transparent’ in modern company
jurisprudence but the veil has been pierced in many situations as
discussed above. In the expanding horizon of modern jurisprudence, it is
acceptable to lift the corporate veil and its frontiers are unlimited.
However, this mainly depends on the realities of the situation. The aim
of the legislation is to do justice to all the parties and therefore we can
conclude that the principle of the doctrine of the lifting of corporate veil
is expanding.
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BIBLIOGRAPHY
● Avatar Singh, Company Law ( Eastern Book co., 17th edn, 2016).
● https://www.researchgate.net/publication/350210623
● https://www.lawteacher.net/cases/salomon-v-salomon.php
● https://www.google.com/