Salomon vs Salomon & co. ltd. case summary
Facts:
Aron Salomon, a leather merchant, incorporated Salomon & Co. Ltd. in 1892. He transferred his business to the company for £39,000 so the Salomon became the managing director and majority shareholder (20,000 of 20,007 shares) and His sons held the remaining shares.
The company issued debentures to secure loans after some time Business declined , therefore company went bankrupt. Hence the question of Lifting up of corporate veil is arised.
Issue:
Can a company be considered a separate legal entity from it’s share holders , protecting them from liability?
Was there any corporate veil in Salomon & Co. Ltd. ?
Key doctrine:
“Lifting up of corporate veil.”
a legal concept that allows courts to disregard the legal separation between a company and its shareholders or other officers.
“Doctrine of corporate personality.”
Every company is a separate legal entity having a distinguished personality from its shareholders.
Ruling:
The House of Lords unanimously ruled in the favor of the doctrine of corporate personality, which states that a company is a separate legal entity from its shareholders and directors. This ruling protects shareholders' private assets and limits their liability.
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