Welcome back to the "Decoding Judgements" series by CaseSnappy, serving you litigation enlightenment in digestible chunks. Today, we uncover the threads of Salomon v A Salomon & Co Ltd [1897] AC 22, a milestone in corporate law that defined limited liability and the separate legal personality of corporations.
Who is liable for the company’s debts? This was the prime question. Salomon supported the principle of separate legal entity after incorporation, thereby shifting the company’s debts onto the company itself. The liquidator, on the other hand, accused Salomon of hiding behind the company as his alter ego and thereby trying to escape the debts.
Who is liable for the company’s debts? This was the prime question. Salomon supported the principle of separate legal entity after incorporation, thereby shifting the company’s debts onto the company itself. The liquidator, on the other hand, accused Salomon of hiding behind the company as his alter ego and thereby trying to escape the debts.
The House of Lords stepped in with the final verdict, underlining the company’s separate legal identity by referencing the Companies Act 1862. Even if Salomon and the company were virtually identical, in law, they were separate entities post the company’s valid incorporation. Salomon could thus benefit from limited liability protection - as all shareholders are entitled to.
Reverberating through the decision were the words of Lord Halsbury and Lord Macnaghten: that the company, once legally incorporated, differs entirely from its shareholders, and that the business belonged to it, not to Salomon.
Through the Salomon v A Salomon & Co Ltd judgement, the bedrock principles cementing the notion of a corporation's separate legal personality and limited liability were firmly established. We, at CaseSnappy, strive to convert intricate legal decisions into lucid summaries for law enthusiasts, students, and professionals alike.
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