Company Law Essay

The Salomon & Co.[1] case brought about the most significant decision ever laid down in Company Law. The House of Lords decision is the leading authority on the principle that the company [2], which is incorporated under the Companies Acts 1963 is a separate legal entity, separate from its members and capable of having a corporate personality of its own, as Lord MacNaghten stated in Salomon “a different person altogether”[3], from that of the members, almost depicting a fictional character capable of acting on its own behalf, entering into its own contracts, owning property, having the ability to sue and be sued but most importantly, its members by way of limited liability are not liable for the debts of the company to their creditors.

Aaron Salomon, ran a profitable business as sole trader as a leather and boot manufacturer in Whitechapel, London and on advise decided to register a company and sell to it, his business for the sum of   ₤39,000 sterling. He received payment by way of 20,000 ₤1 shares, which he divided among his family, issuing one each to his five children and another to his wife. He kept the remaining shares. The outstanding sum was issued to Salomon by way of a debenture and the company was in debt to him. This placed Salomon in the position of principal shareholder and creditor of Salomon & Co. Ltd.

Due to a downturn in the business at the time the company experienced some difficulties and Salomon took out a further mortgage to help keep the company afloat.
But when this loan fell into arrears an action was brought by the liquidator Mr. Broderip against the appellant, Aran Salomon, which was tried before Mr. Justice Vaughan Williams[4].

The liquidator tried to maintain that the original debenture issued to Salomon was invalid as Salomon and Salomon & Co. were in fact the same person and he was operating as he had done so in the past, that the company was merely an agent of Salomon and therefore he was personally liable for the debts of... [continues]

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