Salomon v A Salomon & Co Ltd [1896]

Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22 is a landmark case in UK company law, and it had significant implications for the doctrine of corporate personality across the globe. The case, decided by the House of Lords in 1897, solidified the principle that a company is a separate legal entity distinct from its shareholders. In this case, Mr Aron Salomon, who ran a sole proprietorship making leather boots or shoes, sought to turn his business into a limited liability company.

The facts of the case involve the incorporation of Salomon's business into a new entity, A Salomon & Co Ltd. Salomon, along with his wife and five elder children, became subscribers to the company. Salomon took the majority of the shares (20,001 out of 20,007), and his two elder sons became directors. Financial transactions occurred, including the purchase of Salomon's business by the company at a seemingly excessive price, and Salomon receiving debentures and an advance secured by these debentures.

However, the company faced financial troubles, leading to default on debenture interest payments and eventual liquidation. Creditors, including Edmund Broderip, sought repayment. The legal dispute centred on whether Salomon should be held responsible for the company's debts, challenging the legitimacy of the company's incorporation.

The trial court ruled in favour of Broderip, asserting that the company was essentially Salomon in another form, and thus, Salomon should indemnify the company. The Court of Appeal upheld this decision, stating that the company was a mere device for Salomon to carry on trade with limited liability.

In a unanimous decision, the House of Lords overturned the lower courts' rulings. Lord Halsbury emphasised that the statute did not specify independence requirements for shareholders. Lord Macnaghten argued that Salomon was legitimately taking advantage of the statutory provisions, and once duly constituted, the company was a legal entity separate from its shareholders.

This case remains significant in shaping the understanding of separate legal personality under English law. While the case has faced criticism for potentially allowing the abuse of the corporate form, it has stood unimpeached for over a century. Various exceptions to the separate legal personality doctrine have emerged over the years, particularly in cases involving fraud or crime.

Legislative responses, such as the Preferential Payments in Bankruptcy Amendment Act 1897 and subsequent reforms like the Insolvency Act 1986, reflect attempts to address issues related to secured creditors. The ongoing debates and occasional criticisms highlight the complexities surrounding the application of the separate legal personality doctrine in various legal contexts.
Back to blog
UOL Case Bank

UOL Case Bank

Upon joining, you become a valuable UOL student and gain instant access to over 2,100 case summaries. UOL Case Bank is constantly expanding. Speed up your revision with us now.

Subscribe Now

Where are our students from?

Yale University
Council of Europe
Baker Mckenzie 
University of Chicago
Columbia University
New York University
University of Michigan 
INSEAD
University College London (UCL)
London School of Economics (LSE)
King’s College London (KCL)
University of London
University of Manchester
University of Zurich
University of York
Brandeis University
University of Exeter
University of Sheffield
Boston University
University of Washington
University of Leeds
University of Law
Royal Holloway, University of London 
Birkbeck, University of London
SOAS, University of London
University of Kent
University of Hull
Queen’s University Belfast
Toronto Metropolitan University
Hong Kong University of Science and Technology
University of Buckingham

  • Criminal Practice

    Diagrams and Charts

    Our carefully designed diagrams and charts will guide you through complex legal issues.

  • Criminal Law

    Clear and Succinct Definitions

    Key concepts are concisely defined to help you understand legal topics quickly.

  • Property Law

    Statutory Provisions

    Statutory provisions are provided side by side with legal concepts to help you swiftly locate the relevant legislation.

  • Public Law

    Case Summaries

    We have summarised important cases for you so that you don't need to read long and boring cases.

  • Evidence

    Rules and Exceptions

    Rules and exceptions are clearly listed so that you know when a rule applies and when it doesn't.

  • Company Law

    Terminology

    Legal terms and key concepts are explained at the beginning of each chapter to help you learn efficiently.

  • Case Law

    Case law is provided side by side with legal concepts so that you know how legal principles and precedents were established.

  • Law Exam Guide

    Law Essay Guide

    You will learn essential law exam skills and essay writing techniques that are not taught in class.

  • Law Exam Guide

    Problem Question Guide

    We will show you how to answer problem questions step by step to achieve first-class results.

  • Conflict of Laws

    Structured Explanations

    Complex legal concepts are broken down into concise and digestible bullet point explanations.

  • Legal System and Method

    Legal Research

    You will learn legal research techniques with our study guide and become a proficient legal researcher.

  • Jurisprudence and Legal Theory

    Exam-focused

    All essential concepts, principles, and case law are included so that you can answer exam questions quickly.