Saloman vs Saloman case

1. LAB-II Project work
Saloman Vs Saloman Case ,
Compony As separate legal Entity
GROUP 6
ABHISHEKH RAI
DEVVRAT GUPTA
PARAG GARG
SARTHAK DAS
SIDDHI VINAYAK

2. Outlines
Introduction to the scenario
Introduction to the case
Issue of the case
judgment 1
final judgment
Conclusion

3. Saloman v Saloman is the leading
case which laid down the principle
of the Corporate veil.
It is a landmark judgment in UK
Company Law case which firmly
upheld the Doctrine of Corporate
personality as a separate legal
entity and thus the shareholders
can’t be personally liable for the
insolvency of the company.
Introduction
to the
scenario

4. Facts of the case
• The appellant Aron Saloman was a wholesale supplier of the export quality leather boot, around 30
years back of 1892. On 1st June 1892.
• He transferred his business to a company where the appellant, his wife, daughter and four sons were the
subscriber to the memorandum of association.
• The appellant’s business was sold to Company for the sum of £ 38,782 in which £ 16,000 was decided to be
paid in form of cash or debenture.
• Debenture of worth £ 10,000 was issued in favour of Aron Salomon.
• Unsecured creditor:- £ 7000
• The appellant took 20,001 of the company’s 20,007 shares as a payment for his old business.
• Later on, the company’s business failed and in October 1893, an order was made to wind up the business
of the company. At this date, a company was indebted to £ 7,773 to the unsecured creditors.

5. Issue of the case
• The case concerned claims of certain unsecured creditors in the
liquidation process of Saloman Ltd., a company in which
Saloman was the majority shareholder, and accordingly, was
sought to be made personally liable for the company’s debt.
• Hence, the issue was 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.

6. Judgement of lower/appeal court
• Court of appeal adjudicated in favour of liquidator contentions over the
appellant and found Aron Saloman responsible to indemnify the debts of
unsecured creditors of the company.
• The court considered the company’s business as Saloman’s own business
and the signatories of the memorandum of association were dummies and
the company was working just as Aron Saloman’s agent.
• The appellant was the Principal and earned excessive money by this
business thus he owed to indemnify the company’s debt. Court of appeal
considered the company as a personal liability of Salomon by ignoring
company as a separate legal identity.

7. Judgement of higher court
• The House of Lord reverses the judgment of the Court of Appeal. It analyzed the proposition
laid down by the Court of Appeal ‘that the Company was working just an agent of Saloman,
to carry on his business’
• Saloman to sell his business was excessive in amount but here one thing is worth noticing
that the time when Salomon transferred his business to the company it was in a sound
condition and there was a substantial surplus”. After observing all the facts the House of
Lords relied on the fact “that Incorporation of the Company can’t be disputed.”.
• Thus it is the Landmark judgment which laid down the concepts about the formation and
working of the company and about the Corporate Veil. This theory of Corporate entity
provided the basic principle on which the whole law of Incorporation is based.

8. Conclusion
Saloman’s case
established new
boundaries that in law a
registered company is an
entity distinct from its
members, even if the
person hold all the shares
in the company.
There is no difference in
principle between a
company consisting of
only two shareholders
and a company consisting
of two hundred members,
In each case the company
is a Separate Legal Entity.

9. Similar
cases
• Macaura vs Northern Assurance Co. Ltd. [1925]
where Macaura insured the timber used to
sell all the timber to a company that was
under his name. He insured the timber
against fire under his own name and he was
the company's largest creditor.
• Lee vs Lee Air Farming [1960] where Catherine
Lee's husband, Geoffrey Lee owned a top
dressing fertilising company. Mr Lee was the
sole director, pilot and owner of 2999 out of
the 3000 shares of the company. He died in a
plane crash while working. Mrs Lee's claim
for £ 2,430 under the Workers Compensation
Act, 1922 was being upheld by the Court of
Appeal, New Zealand.