“A company is a separate legal person distinct from its shareholders, even if one person holds all shares.”
Aron Salomon carried on a boot and shoe manufacturing business as a sole trader. He incorporated Salomon & Co Ltd and sold his business to the company for £39,000, paid by shares and debentures secured against company assets. Salomon, his wife, daughter and four sons were the seven shareholders (as required by law). The company later went into insolvent liquidation.
Whether a company validly incorporated under the Companies Act 1862 is a legal entity separate from its shareholders, or whether it can be treated as identical with its sole beneficial owner.
The House of Lords unanimously held that Salomon & Co Ltd was validly incorporated and was a separate legal person distinct from Salomon himself. His secured debentures took priority over unsecured creditors.
This is the foundational case establishing the doctrine of separate corporate personality in English company law. It confirmed that incorporation creates a legal person distinct from shareholders, enabling limited liability and protecting individual shareholders from corporate debts.
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OSCOLA Citation
Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22
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