Law Salomon

Topics: Fiduciary, Law, Stock Pages: 1 (289 words) Published: January 25, 2013
Salomon v Salomon & Co Ltd [1897] AC 22 (lawcite link) was the case that got me interested in corporate law. The principle from the case is very simple - a company is a separate legal entity and thus a juristic "person" in the eyes of the law. As with all simple things, the case is complex and has many layers. Aaron Salomon was a Jewish leather merchant in Victorian England. He set up a company with the required seven shareholders (his wife and kids). He lent the company money (as a secured creditor) and then borrowed more money and got into financial trouble. The question of law was who should be paid first, unsecured creditors (like employees and utility bills) or himself as a secured creditor.

The UK Court of Appeal was anti-semetic and felt Salomon was a fraud and his company was a "sham". But the House of Lords court stated that the company was properly set up, there was no fraud and thus Mr Salomon was a distinct entity from his company, his directorship, his shareholding and his rights as a secured creditor.

This principle has been applied in many, many cases ever since. When I first read the case in 1983 while at Law School in Coventry (UK) I fell in love (if that is the right expression) with corporate law. Many of you know I wanted to be a "lawyer" from about 14 years old, but in 1983 I decided "corporate law" was going to be "my area of expertise" - over 25 years later, it still is! Also, within corporate law, my area of interest has been directors' duties and securities markets fraud (in particular the confusion over insider trading and market manipulation).
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