Salomon Principle

Page 1 of 3

Salomon Principle

By | Jan. 2011
Page 1 of 3
THE IMPACT OF SALOMON V SALOMON & Co. Ltd. (1987)
The most important decision ever made by the English courts in Relation to company law is Salomon v A Salomon & Co. Ltd (1897). The vital perception to become familiar with when starting a business is the idea that the business has a legal personality in its own right, mostly when it assumes the form of a Limited Liability Company. This basically means that if someone starts a business as a Limited Liability Company, then the Company is a legal entity with separate legal personality, would be separate to that of the owners, members, or shareholders. As a separate entity, the company is different from the directors, employees and shareholders. The House of Lords in the Salomon case confirmed the legal principle that, upon incorporation, a company is generally considered to be a new legal entity separate from its shareholders. The court did this in relation to what was essentially a one person Company, which is Mr Salomon. At a specific level, however, it was a bad decision. By extending the benefits of incorporation to small private enterprises, Salomon's case has upheld fraud and the evasion of legal obligations, (this will be looked at into depth later). The main areas this essay will be focus on are; the discussion on the Salomon’s case which will include the corporate veil {whether or not it is a legal fiction}; if the corporate veil is consistently acknowledged, look behind the veil or piecing the corporate veil and the situations of which the government expressed itself on its intention in piecing the veil, including a reasonable conclusion. The concept that prevail the Salomon’s case is nothing else but a company is separate from the shareholder, which means that the company is independent and separate from any other entities that are related to the company. In Salomon v Salomon and Co Ltd. (1897), Mr Aron Salomon has been operated his business as a sole proprietor for many years, he then decide to...