Introduction:
Salomon v A Salomon Co. Ltd is a historical UK Company Law case which led to the establishment of The doctrine of separate legal entity (Macintyre 2012). This case is often cited in journals and textbooks and the principles are often observed in English Law Firms (Karasz 2012).
The case describes the limited company that was founded by Mr. Aron Salomon, a leather shoemaker at London, Whitechapel road. The company had seven members formed by Salomon with major shares and his family members who subscribed as shareholders to fulfill the principal of a corporation as set out in The Companies Act, 1862. Hence, Salomon was a chief creditor and as well as a shareholder of his company.
Salomon’s company failed due to a series of strikes and the interests were insufficient to be paid to the creditors. The company became insolvent and a fixed charge was put towards the debentures over the company. The liquidator sued and claimed to high court for cancellation of Salomon’s indemnity. This study further describes the facts, principles, decisions of High Court and the overturning of the decision of House of Lords for Salomon’s case and the rise of the principle of separate entity. For the given case Lord Halsbury stated “Either the limited company was a legal entity or it was
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Aron Salomon was a successful businessman who made leather shoes and boots at Whitechapel Highstreet, London. His sons were interested to be involved in a business. Salomon established a limited liability company and named A Salomon Co. Ltd. According to Companies Act 1862, A limited liability company must have at least seven persons subscribed as shareholders. Salomon involved his own family into the business. He himself became a Managing Director, two of his sons became Directors and the rest of his children and his wife became subscribers. Salomon took 21,000 shares himself and distributed the remaining six shares individually to the six members (1897, AC 22) (Keenan & Riches