The Case Salomon V Salomon & Co Ltd

1242 Words Aug 28th, 2016 5 Pages
At law, a company will become a new and separate legal entity and have limited liability once it is incorporated, and is capable of entering into contracts, and to sue and be sued. It will be completely separate from the members who have formed the company, and from the members that manage it. The separate legal personality was first established in the case Salomon v Salomon & Co Ltd and described the doctrine as a ‘double-edged sword’. This essay will explain the competing interests of this doctrine, and how this doctrine fits this analogy.

The case Salomon v Salomon & Co Ltd primarily regarded the validity of limited liability of a single owned company in reference to the company’s legislation. In this case, Salomon sold his business to a company called “Aron Salomon and Company Limited” that was created by him and his family. The Companies Act 1862 legislation needed at least seven subscribers, so Salomon, his wife, and five children all subscribed to one share to satisfy the legislation. After a period of time, the company came to financial problems and went into liquidation. It was held that the under the Act the company is deemed valid and neither as an agent or trustee had limited liability. Therefore, Mr. Salomon could not compensate the company. However, because the company is viewed as a separate legal entity that is divergent from Salomon, it was then permissible for him to be the proprietor, and also a creditor with security which can give him the primacy over…
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