“House of Lords establishes principle of separate corporate legal personality”
Aron Salomon incorporated his boot-making business, with himself and six family members as shareholders and himself holding 20,001 of 20,007 shares. When the company became insolvent, creditors argued the company was merely Salomon's agent and he should be personally liable for debts.
Whether a properly incorporated company has separate legal personality distinct from its shareholders, even where one person owns substantially all the shares
A company incorporated under the Companies Act has separate legal personality from its shareholders and members are not liable for company debts beyond their shareholding
The House of Lords held that provided the requirements of the Companies Act were met, the company was validly incorporated with separate legal existence. The court rejected the 'agency' and 'trustee' theories, emphasizing that the Act did not distinguish between independent and nominally independent shareholders.
This case established the fundamental principle of separate corporate personality and limited liability that underpins modern company law. It remains the foundation for the corporate veil doctrine in UK law.
OSCOLA Citation
Salomon v A Salomon & Co Ltd [1897] AC 22 (HL)
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