Salomon V Salomon & Co Ltd Case

1065 Words Nov 17th, 2014 5 Pages
Salomon V Salomon & Co Ltd case:

Salomon was a prosperous leather merchant who specialized in manufacturing leather boots. For a long time he ran his business as a sole proprietor. By 1892, his sons had become fascinated with taking part in the business. Salomon chose to consolidate his business as a Circumscribed company, Salomon & Co. Ltd.

At the time the licit requisite for incorporation was that at least seven persons subscribe as members or partners of the organization i.e. as shareholders. And Mr Salomon was managing director. Mr Salomon possessed 20,001 of the company 's 20,007 shares - the remaining six were shared individually between the other six shareholders (wife, daughter and four sons).
Mr Salomon sold his business
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First court:

The judge, Vaughan Williams J. acknowledged this argument, deciding that since Mr Salomon had made the organization singularly to exchange his business to it, therefor the organization and Salomon were one unit; the organization was actually his specialists and he as vital was at risk for obligations to unsecured lenders.

Court of Appeal:

The Court of Appeal also ruled against Mr. Salomon, on the grounds that Mr. Salomon had abused the privileges of incorporation and limited liability, which the Legislature had intended only to confer on "independent bona fide shareholders, who had a mind and will of their own and were not mere puppets". The lord justices of appeal variously described the company as a myth and a fiction and said that the incorporation of the business by Mr. Salomon had been a mere scheme to enable him to carry on as before but with limited liability.

The Court of Appeal additionally ruled against Mr. Salomon, in light of the fact that Mr. Salomon had misused the benefits of incorporation and limited liability.

The House of Lords:
The House of Lords upon critical clarification of the 1862 Companies Act, crushed the ruling of the Court of Appeal’s. As Salomon followed the required procedures to the set the company; shares and debentures were issued. The House of Lords held that the firm has
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