Salomon v. Salomom Co. Ltd [1897]: A shoemaker company owned and operated by a single person
Posted by snowie , Friday, March 26, 2010 4:58 AM
In this case, Salomon was a prosperous boot and shoe manufacturer. He ran the business as a sole trader under the style of 'A. Salomon & Co.'. Salomon was married and he had five children. All his children pestered him for a share in the business. Salomon then decided to incorporate his business as a limited liability company. He gave one share each to his wife and his five children and he himself took 20,001 shares. The business was then transferred to the company, and in consideration thereof debentures were issued to Salomon. But Salomon continued to run the business as before. The business floundered. Salomon was unable to salvage the company and the company was put into liquidation. There were enough assets to pay off the secured creditors including Salomon himself who was a debenture holder. But the unsecured creditors were left stranded. The liquidator sued Salomon.
The Court of Appeal held that he was liable to indemnify the company against the losses. However, the House of Lords reversed this decision and held that incorporation of a company created a separated person. The House of Lords also held that even though the business of the company was the same as before and the same person managed the business and with the same hands that received the profits, yet the company was not an agent or a trustee for the members. The House of Lords held the members were not liable in respect of the company's obligations.
Opinion:
In my opinion, based on the Companies Act 1965, the word 'company' means is a corporate body or corporation. A corporation is an artificial legal person that exists independently of the individuals who at any given time are the members of the corporate body.
Even though Salomon had decided to incorporate his business as a limited liability company, he is one of the members and who was a debenture holder as well for the company. Thus, Salomon is not liable to indemnify the company against the losses due to Salomon and the company were separate persons.
However, this case became the bench mark for many cases, such as Lee v. Lee's Air Farming Ltd [1960], Abdul Aziz bin Atan & Others v. Ladang Rengo Malay Estate [1985], and Macaura v. Northem Assurance Co. [1925].
