Case record
Country
United Kingdom
Court
House of Lords
Year
1897
Areas of Law
Corporate law, Company law, Insolvency law
Citation
Salomon v. Salomon & Co. Ltd., House of Lords (1897)
Salomon v. Salomon & Co. Ltd. ([1897] AC 22) is the foundational cornerstone of corporate law. The House of Lords firmly established the doctrine of separate legal personality, holding that a legally incorporated company is an independent legal person completely distinct from its shareholders and directors.
Aron Salomon ran a sole proprietorship leather boot manufacturing business. He incorporated Salomon & Co. Ltd., assigning shares to himself and six family members to satisfy the 7-shareholder statutory requirement under the Companies Act 1862. Salomon held 20,001 of 20,007 shares and issued secured debentures to himself for part of the purchase price. When the business failed and entered liquidation, unsecured creditors argued Salomon and the company were identical and his debentures should be invalidated.
Corporate personality / Corporate veil doctrine
Memorandum of Association, statutory share register, debenture security documents, and liquidator financial accounting statements.
Unsecured creditors argued the company was a mere sham, agent, or nominee for Salomon, making him personally liable for corporate debts. Salomon argued that once validly incorporated, the company possessed independent legal identity.
The House of Lords unanimously reversed the Court of Appeal, holding that Salomon & Co. Ltd. was a separate legal entity and Salomon's secured debentures were valid.
Lord Macnaghten held that the statute required seven shareholders, which was formally complied with. The law does not inquire into shareholder motives. Once incorporated, a company is at law a different person altogether from its subscribers, and its debts are not the debts of its members.
Created the foundational principle of separate legal entity/corporate personality ('corporate veil') in modern business law.
Created the foundational principle of separate legal entity/corporate personality ('corporate veil') in modern business law.
Beyond borders
Comparative analysis has not yet been prepared for this case. Request one below.
Ask the editorial team to read this judgment against another legal system.
The circle
One thread for this judgment. Replies stay with the case, so the discussion reads as a single conversation rather than a feed.
Community guidelines
Judgment poll