An Analysis of Salomon v Salomon and Corporate Law Principles

This case study provides an analysis of the landmark Salomon v Salomon case in corporate law, focusing on the principle of the corporate veil. The case involved Aron Salomon, a boot maker who transformed his sole proprietorship into a limited liability company, Salomon & Co Ltd. The report details the facts of the case, including the allocation of shares and debentures, the company's subsequent financial difficulties, and the resulting legal dispute. It examines the prior law and the House of Lords' decision, which reversed the Court of Appeal's judgment and affirmed the company's separate legal existence. The analysis also explores the effects of the Salomon case on modern corporate law, including its criticisms and the concept of lifting the corporate veil. The report concludes that the case established a significant precedent for the treatment of companies as distinct legal entities, separate from their owners, influencing corporate activities and legal functions.

LAW201 Corporate
Law

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

INTRODUCTION
For the effective management of life there is needed to imply rules and regulation
with a systematic approach. A positive attitude and environment can be given by protecting
the rights of all the individuals and by implementing laws with safeguarding measures. There
is being seen that law is an important command provided by the had governmental authorities
through which the public importance can be managed and the protection of responsibilities,
rights and rules for the individuals can be maintained. There is also being seen that rights
with the shareholders, employers and employees were being given in the companies act
through which all the management of functions of companies can be effectively materialised
(Berger, 2020). In this report there will be a discussion on a case scenario of Salomon versus
Salomon which was a well-known leading case on the principle of corporate wheel. This
report will provide the facts with the decision and the effects which that case made.
MAIN BODY
Facts
In this case there was a man named Aron Salomon who was the well-established shoe
maker in England. His main work was to make leather boots and he was a sole proprietorship
of that business. He used to manage all his family earning through that business and his sons
were eager to join their business as partners. He switched and made that business into a
limited liability company and it was changed into Salomon & Co Ltd. His new business was
being managed and was purchased on excessive pricing. His wife along with his five elder
children got the position of subscribers in the company, and his two eldest son got the
position of directors. In order to maintain the business Mr Salomon allocated 20,001 for their
company’s major 20,007 shares adapted (Kumar and Gupta, 2020). There is been seen that
company has given about £10,000 as for the debentures with which he received about £5,000
advance from Broderip Edmund for the general security of debentures. After sometime they
realised that Salomon business faced a major failure and also issued a defaulted on all the
payment of interest for the debentures. Broderip company filed a suit against Salomon
business in order to gain the security. As due to the payment failed by Salomon business
there has been seen a default on the interest of payment in which Broderip filed a suit in the
company faced a liquidation where they repaid 5000 £ to Broderip and their assets will
remain for about £1055. Salomon Also claimed for retaining the debentures as there was
nothing for the company’s unsecured creditors because of which all the liquidator of the
company made an argument with Solomon and held him responsible for all the steps he is

taken for the company and sued for £1055. They all raised issue in the formation of company
from Sole proprietorship to limited liability and claimed that it was a fraud intention to defeat
all creditors.
Prior law
As according to the companies act 1862 there is being analysed that all the rules
which were being heard by the court of appeal has made a question of doubt about the
incorporation of company and their business practices. There is being analysed that all the
debts incurred will be the responsibilities in the time course of formation of company of the
Salomon to provide the creditors all the loss they had been suffered. As earlier in all the
situations when there is being any default then no separate legal entity is being managed and
all the liabilities and responsibilities will shift towards the owner. In prior in this case there is
being seen that all the defaults through the uncompromising precedents were being managed
and only be liable for the debentures and the defaulters that are needed to be paid. Court held
that Salomon will be treated as the agent in order to manage and conduct the business and
will only be responsible for all the debentures and the issues with the debts between them.
There is also being analysed that all the defaults made will be covered under the principal and
agent liabilities for all the money in the business practises and that will be indemnified for all
the company’s debts. This will be treated as a personal liability for all person by managing
and ignoring the consideration of separate legal entity(Ahlborn, 2020).
Decision
House of lords reverse the judgement of court of appeal and made it possible for the
existence of company. They held that company has their own existence and will be known as
a legal entity for managing and practising on business which is not being covered only of
Salomon. And for this case the Salomon Eventually transfer the business and also made the
company to turn into a limited liability when it was in a perfect and sound condition with all
substantial surplus. House of Lloyd focused and emphasised on the general material facts that
there is no issue for the incorporation of company(Faraci, and Lonardo, 2021).
As in case of Lee v. Lee Air Farming Ltd. 1925, that all the companies will be
managed effectively with a corporate personality which managed to have a master and
servant along with the husband-and-wife relation will not be treated as authorised relation
within it. The wife can also ask for the compensation on the death of the husband as in the
case of serving in company as a pilot. Court Made a landmark judgement by providing the

formation of company and working within the lifting of corporate veil and also managed to
some important principles regarding Incorporation which is being analysed(Kumar, 2020).
Lifting of corporate veil is a major focus which permits the company to do all the acts
and perform all the important juristic working functions on their own name and all the suit
can be filed against the company and the protection will be provided to the members and the
directors against personal liabilities. This led to out to be a historic judgement which changed
the working procedures of the corporations and also make it a perpetual and individual
identity for a single owner.
Effect
Salomon case has faced major criticism and also created a negative impact by
instituting the modern capitalist society in order to protect the corporate veil and also to
manage the neutralisation with the time-to-time efforts made jointly by the judiciary and
legislative principles. All the fundamental standards and functions of incorporations were
being managed by precedent and corporate veil created a layer and shield for all the members
who used to work in good faith for the company (Graziano, Born, and Johnson, 2020). Then
also analyse that in corporation for all the separate legal entity will not make the workmen to
be liable and also protect the persons actual savings. Company managed to gain the capacity
and also from the accountable reasons through which the unfair and just issues of the
fraudulent wrongdoers can be strictly punished. By providing the artificial legal person title
to the company their uplifted the law with the interest of equity and also manage the good
and concise efforts of general prejudice. Lifting of corporate veil is being used in the
judgements in the court with an important provision.
CONCLUSION
It can be concluded from this above report that company law is important to manage
the business organisations as it provides the rules of legal entities with the implementing
functions. There has been seen that lifting of corporate veil created a major impact on the
organisations and business which used to be focus on the corporate activities as it manages
the company to be a separate legal entity which is being distinct from all their owners.
Solomon case provide a landmark judgement through which companies were being treated as
authentic personal identity.

REFERENCES
Graziano, A.B., Born, E.C. and Johnson, J.K., 2020. Salomon Henschen and the Search for a
Brain Center for Singing. In The Routledge Companion to Interdisciplinary Studies
in Singing (pp. 52-63). Routledge.
Ahlborn, C.S., 2020. Lifting the corporate veil: The responsibility of international
organizations and their member states.
Kumar, S. and Gupta, Y., 2020. Wings Clamoured Or Unhackneyed Flight: Insolvency &
Phoenixing in India. Indian JL & Pub. Pol'y, 7, p.53.
Berger, T., 2020. Gender differences and the making of liturgical history: lifting a veil on
liturgy’s past. Routledge.
Faraci, A. and Lonardo, L., 2021. Abuse of Right in International Law: A Roman Law
Analogy. In Cynical International Law? (pp. 283-299). Springer, Berlin, Heidelberg.
Kumar, R., 2020. Code on Wages, 2019: a Paradigm Shift in Enforcement of Wage Related
Labour Laws. Suraj Punj Journal For Multidisciplinary Research (2394-2886)
Volume, 10, pp.68-91.