Salomon v. Salomon: A Landmark Judgement on Corporate Veil

This report covers the case scenario of Salomon v. Salomon, a landmark judgement that laid out the principle of corporate veil and its impact on business organizations. It provides a critical analysis of the decision and its effect. The report also emphasizes the importance of law in protecting the rights of individuals and managing business efficiently.

LAW201 Corporate
Law Semester 2 2021
Assessment Task 2
Report Individual

Table of content
INTRODUCTION...............................................................................................................................3
MAIN BODY.......................................................................................................................................3
Facts..................................................................................................................................................3
Prior law...........................................................................................................................................4
Decision............................................................................................................................................4
Effect.................................................................................................................................................5
CONCLUSION....................................................................................................................................5
REFERENCES....................................................................................................................................6

INTRODUCTION
In today’s life it is important to manage all the functionality and the general working
scenarios in a systematic manner. In order to create a positive environment by protecting the
rights of individuals with their safeguarding measures Law is an important source. Law is a
command given by irrespective higher authorities and government in order to create safe
environment for individuals and also to protect their rights and responsibilities. This is not
only helps in the daily lifestyle but also helps to manage the organisational work in a proper
manner. As Companies act sets out to protect the rights of the shareholders, employees and
all the working members in order to manage the business efficiently (Hasif, (2018)). This
report will cover a case scenario of Salomon v. Salomon Which was a leading case which
laid out the principle of corporate veil and has raised a landmark judgement in UK regarding
to the facts with the critical analysis of the decision and the effect that has been led out after
the decision has been influenced.
MAIN BODY
Facts
Aron Salomon was a well-known show maker in England He used to make leather
boots as a sole proprietor. As that was his family earning his sons were willing to be business
partner with him in order of which he turned his business into a limited liability company
through which the business changed in a Salomon & Co Ltd. The business was being
purchased by the company at an excessive price. His five elder children and wife became be
subscribers along with that the two elder sons of Aron Salomon became the directors. Mr.
Salomon was already being allocated for about 20, 001 of their companies 20, 007 shares. For
all this the company thereby has given him £10,000 as debentures in order to make the
security of debentures and has also received an advance of £5000 through Edmund Broderip.
Later on, there is been seen that Salomon Business failed there was also observed the
defaulted-on interest payments through the debentures for which Broderip sued for enforcing
his security. Because of all this the company went in liquidation for which Broderip was there
by being repaid their £5000 and through which the company’s assets remain was about £1055
(Tayyarli, (2021)). Salomon Claimed in order to retain the debentures as there was left
nothing for unsecured creditors in the company’s liquidator argued that Salamone will be
responsible for all the company’s steps and was sued for £1055. The major issue turned over
there was that the formation of the company into a limited liability company a fraud intention
in order to defeat the creditors.

Prior law
As when it is been noticed earlier according to the rules and hearings court of appeal
has raised doubt that the business will be Incorporated in company through all the contrary
intention according to companies act 1862. There was earlier being noticed that for all the
debts incurred at the time of course in agency responsibilities will be laid on Salomon in
order to manage and provide all the laws to the creditors. Before this case has been arrived
the company was never being known as in separate legal entity and all the responsibilities
and rights were being laid out on the owner itself (Rizzo Naudi, (2017)). Prior to this case if
in case of any such default there was being seen and uncompromising precedents through
which the person will only be liable for the defaulters and debentures that are to be paid.
Earlier there has been observed that Salomon Will be treated as an agent for conducting the
business practice or thereby be responsible for all the issues and debentures for the debts that
has been a rise in between them. There is being observed that also default used to come under
the principal and agent liabilities regarding the money in the business which are being
indemnified through the company’s debts. It manages it as a personal liability of a person by
ignoring all the considerable areas for separate legal entity.
Decision
The judgement was being reversed by house of lords of all the court of appeal where
it has been laid out about the existence of company. Where court held that when a company is
in existence by any of an act it will be treated as a legal entity for the own business and will
not be belonging to Salomon, and in case if the company will not be treated as an existence
then this will not be pointed out to work as an agent for the company. There has been
observed that at the time when Salomon has transferred his business and turned up into a
company it was in a sound condition and also have substantial surplus. House of lords also
relied on fact that there can be no dispute arise on the incorporation of company.
Court has also observed as in the case of Lee v. Lee Air Farming Ltd. 1925, that there
will been in effect regarding to the corporate personality which has enabled them to be master
and servant as the husband-and-wife relation will not be authorised in it and she can get the
compensation for the death of her husband while serving for the company as a pilot (Okutan
Nilsson, G. (2020)). Court has given a landmark judgement in which the concept has been
provided regarding the formation and also the working of company with the lifting of
corporate veil. Through which the basic principle for incorporation is being encountered.

Where the lifting of corporate veil means that it will give the permission to a
company to perform all the juristic acts on their own name and they can be sue or to be sued
there will be given protection to all the directors and members against all the personal
liabilities. This was a historic judgement which has been laid and changed the whole scenario
of companies act and their working procedure through which the corporation would thereby
be entitled to make the company as their own perpetual and individual identity and will be
carried out as a single owner (Stolarsky, (2021)).
Effect
After the decision given in Salomon case there has been seen a major criticism or a
negative impact within a mean time because this generally instituted a growth in modern
capitalist society where all the protection of corporate veil is empowered but there is also
being seen that a neutralisation from general time to time with a joint effort which is being
made by the judiciary and legislative is being framed. Precedents thereby helped out to
manage the fundamental standards in order to create a proper function for all the
incorporations. Corporate veil used to create a protective layer or device for all the persons or
members who used to work for a company in good faith (Diale-Ali, (2019)). This also helps
in identification through which a separate legal entity is being given to incorporation with all
the liable acts which are being made by workmen and this also protects the wheel and make
the person not being liable personally for all the acts which are being done by them. Other
than that, the company also gain the capacity to manage their position. But somehow it is not
good to make the company accountable for all the unjust and unfair means they should be
provided irresponsible and fraudulent wrongdoers a strict punishment. As a company thereby
is an artificial legal person so in all the certain situation where wheel needs to be upheld it
and lifted with the help of law, they should be given an interest of equity and it also provided
a justice and good concise through the general prejudice. The concept of lifting of corporate
veil held out in all the foregoing case scenarios and the judgement of court in different
strategy areas and provisions of law. Courts are now using it as a flexible tool in law and also
helps out to penetrate the justice in a proper manner to probe all the faulty person.
CONCLUSION
From this above report it is concluded that law is an important command which helps
out to manage and conduct a positivity and so vanity in the society. There is been seen that it
helps out to protect the rights of the business organisations and the persons who are being
related to all the corporate activities. Lifting of corporate veil implicates out to make the

company allow to perform all the juristic acts and ignore all the corporate nature entitled with
the body of individuals. Company has their own perpetual and separate legal entity and they
are distinct from their owner. As in Solomon case there came a landmark judgement where
lifting of corporate veil is been entitled and company was treated as in their own authentic
personal identity.
REFERENCES
Diale-Ali, R. U. (2019). The Treatment and Recognition of Company Groups in South
African Corporate Law. University of Johannesburg (South Africa).
Hasif, M. (2018). Prest v Petrodel versus Alwie v Tjong: A Comparative Study. Sing. Comp.
L. Rev., 38.
Tayyarli, K. (2021). Involvement of third parties in the arbitration. Available at SSRN
3911746.
Rizzo Naudi, M. A. (2017). The notion of possession and control when cause of action arises
under Article 742D of the COCP (Bachelor's thesis, University of Malta).
Okutan Nilsson, G. (2020). National report on Turkey. In Groups of Companies (pp. 399-
422). Springer, Cham.
Stolarsky, A. (2021). Legal Forms for Business Activity in Russia. In Russia Business (pp.
215-222). Springer, Cham.