A PowerPoint presentation that explain the case of Salomon vs Salmon co. ltd, it's issue and decision and key understanding.

2. Aaron Salomon
Shoe business
(sole proprietor)
Company Incorporated
(Salomon & Co. Ltd.)
Acquire
at £38,000

3. Salomon & Co. Ltd.
Members
• Mr. Aaron Salomon (20001 shares)
• His wife (1 share)
• His daughter (1 share)
• His four sons (1 share each)
Directors
• Aaron Salomon
• Son
• The company also issued £10,000 in debentures to Mr. Salomon
• After 1 year Salomon business failed

4. • Unsecured creditor sued Aaron Salomon for the repayment of
the debt.
Liquidation process
Assets
(£6000)
Liabilities
(£16000)

5. 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. The Court of Appeal
The company to be a myth, reasoned that Salomon had incorporated the company contrary
to the true intent of the then Companies Act, 1862, and that the latter had conducted the
business as an agent of Salomon, who should, therefore, be responsible for the debt
incurred in the course of such agency.
The House of Lords
Upon appeal, reversed the above ruling, and unanimously held that, as the company was
duly incorporated, it is an independent person with its rights and liabilities appropriate to
itself, and that “the motives of those who took part in the promotion of the company are
absolutely irrelevant in discussing what those rights and liabilities are”.3 Thus, the legal
fiction of “corporate veil” between the company and its owners/controllers4 was firmly
created by the Salomon case.

7. Independent Legal Entity:
A company has a legal entity distinct and separate from its constituent members (shareholders). It is an autonomous
body, self-controlling and self-governing. It can hold and deal with any type of property of which it is the owner, in any
way it likes. It can enter into contracts, open a bank account in its own name, sue and be sued by its members as well as
outsiders.
Perpetual Existence:
A company has a perpetual, succession. It has no allotted span of life. The mode of incorporation and dissolution of a
company and the right of the members to transfer shares freely guarantee the continuity of the existence of the
company quite independent of the life of the members. The existence of a company can be terminated only by law.
Limited Liability:
The liability of shareholders of a company is different from the liability of the company. Shareholders generally have
limited liability- limited to the extent of unpaid value of shares held up. Shareholders have no obligation to the
company once they have paid full amount on the shares held by them. In cases of losses, shareholders are not called
upon to make good the losses

8. Transferability of Shares:
One can sell one’s share of ownership rights to an interested buyer as the shares of a company are
transferable. While in case of public companies shares are freely transferable which is provided by the law,
there are some restrictions in the transferability of shares of private companies.