"Company has a separate legal entity "- justify this statement mentioning the significance of famous case of
Solomon v Salomon & Co Ltd [1896]
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Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22 is a landmark UK company law case.
FACTS: Salomon transferred his business of boot making, initially run as a sole proprietorship, to a company (Salomon Ltd.), incorporated with members comprising of himself and his family. The price for such transfer was paid to Salomon by way of shares, and debentures having a floating charge (security against debt) on the assets of the company. Later, when the company's business failed and it went into liquidation, Salomon's right of recovery (secured through floating charge) against the debentures stood aprior to the claims of unsecured creditors, who would, thus, have recovered nothing from the liquidation proceeds. The liquidator sought to overlook the separate personality of Salomon Ltd., distinct from its member Salomon, so as to make Salomon personally liable for the company's debt as if he continued to conduct the business as a sole trader.
ISSUE: Whether, regardless of the separate legal identity of a company, a shareholder/controller could be held liable for its debt, over and above the capital contribution, so as to expose such member to unlimited personal liability?
JUDGMENT: A company is a separate legal entity distinct from its members and so insulating Mr. Salomon, the founder of A. Salomon and Company, Ltd., from personal liability to the creditors of the company he founded. The court also upheld firmly the doctrine of corporate personality, as set out in the Companies Act 1862, so that creditors of an insolvent company could not sue the company's shareholders to pay up outstanding debts.
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Cases
Salomon v Salomon - Case Summary
1752 words (7 pages) Case Summary
22nd Dec 2020 Case Summary Reference this In-house law team
Jurisdiction(s): UK Law
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Salomon v A Salomon and Co Ltd [1897] AC 22 Case Summary
The requirements of correctly constituting a limited company
Introduction
Separate Legal Personality (SLP) is the basic tenet on which company law is premised. Establishing the foundation of how a company exists and functions, it is perceived as, perhaps, the most profound and steady rule of corporate jurisprudence. Contrastingly, the rule of “SLP” has experienced much turbulence historically, and is one of the most litigated aspects within and across jurisdictions.1 Nonetheless, this principle, established in the epic case of Salomon v Salomon,2 is still much prevalent, and is conventionally celebrated as forming the core of, not only the English company law, but of the universal commercial law regime.
If a business is a separate legal entity, it means it has some of the same rights in law as a person. It is, for example, able to enter contracts, sue and be sued, and own property.Sole trader and partnership does not have separate legal entity.
A company is an incorporated association having separate legal existence and a common seal..