SALOMON vs SALOMON & CO. LTD PRESENTATION

THE LANDMARK CASE

SALOMON vs SALOMON & CO. LTD, 1897

START

Introduction;

• SALOMON WAS A BOOT MANUFACTURER

• He is a sole proprietor.

• He turned the business into a limited liability company.

INTRODUCTION

FORMED LIMITED COMPANY

• On 1st June 1892, he transferred his business to a limited liability company Company consists of-

Mr. Salomon Mrs. Salomon 1 Daughter 4 Sons

• Mr. Salomon took 20,001 of the company’s 20,007 shares
• All of his family members subscribed 1 share each and became shareholders.
• Mr. Salomon- Managing director
• Two of his sons were other directors

INTRODUCTION

PURCHASE CONSIDERATION

• The total purchase consideration – 38000 POUNDS

Shares of 20000 POUNDS Secured Debenture 10000 POUNDS Cash 8000 POUNDS

LIQUIDATION OF THE COMPANY

INTRODUCTION

• Business failed

• in October 1893 an order was made to wind up the business of the company.

• The company ran into difficulties and liquidated.

• At time, a company was indebted to £ 8000 to the unsecured creditors

COMPANY'S FINANCIAL POSITION

ASSETS

LIABILITIES

SECURED DEBENTURES 10000 POUNDS

COMPANY'S ASSETS 6050 POUNDS

UNSECURED CREDITORS 8000 POUNDS

WHOM TO BE PAID?

CASE:

•Broderip( who held half the debentures) was repaid his £5,000

•Salomon claimed under the debentures he retained.

The ISSUE_II

The ISSUE_I

•Liquidator counter- claimed. i) Amount paid to Solomon to be paid back. ii) Salomon’s debentures to be cancelled. iii) Had breached fiduciary duty. iv) Company formed was intented to be fraud against its unsecured creditors.

•Liquidator on behalf of creditors alleged, Alias or the agent. •Salomon sued.

The Verdict:

🔸Adjudication by Court of Appeal in favour of liquidator contentions 🔸Reversal of judgement by The House of Lords "At a time, either there can be an existence of company or not. If It is in existence by the act, then it is a legal entity with it's own business but not belonging to Salomon and if a company is not in existence in reality, then it is just a myth or fiction and there is no point to work as an agent by the company" 🔸Corporate Veil

LEGAL PRINCIPLE

CORPORATE VEIL

• Metaphoric veil, with company on one side and the shareholders on the other.

• Company is a Seperate Legal Entity.

SIGNIFICANCE

• GROWTH OF MODERN CAPITALIST SOCIETY

• SETTING UP OF FUNDAMENTAL STANDARD

• SEPARATE LEGAL ENTITY

• LIFTING OF CORPORATE VEIL

EXAMPLES

SIMILAR CASES:

1)Kondoli Tea Co. Ltd. case in 1886 2)TR Pratt (Bombay) Ltd. v ED Sassoon & Co. Ltd. case in 1935 3)Tata Engineering Locomotive Co. Ltd. v State of Bihar 4)Lee vs Lee's Air Farming Ltd

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