Salomon v/s

Salomon & co.Ltd.

TO – RANJANA DIXIT MA’AM BY – SAHIL HUSSAIN

SEC.- F2/M5
ROLL NO.- 344
 CONTENT

 Introduction.
 Issue.
 Judgment.
 INTRODUCTION

 Aaron Salomon was a leather trade man, has a sole proprietorship

business.
 1892, he incorporate with his sons as a limited company.
 Any limited company, should have at least seven persons who
considers as members of a company “shareholders”.
 Salomon himself as a managing director, his wife, his daughter, and
his four sons.
 he purchased a company for £39,000, taking £10,000 of them as a
debt to him also at the same time he was thus simultaneously the
company's principal creditor and its principal shareholder.
 On the security of his debentures, Mr. Salomon received an
advance of £5,000 from Edmund Broderip.
 shares were divide as: 20,001 shares for Mr. Salomon, and each
other subscribe take one share, each one share worth £1.
 There were a decrease on the sales, “strike”.
 Salomon business failed.
 October 1893, Edmund Broderip sued Salomon to enforce his
security, which make Salomon pay back the £5,000 of Edmund
Broderip.
 The liquidator also argued that the debentures used by Mr. Salomon
as security for the debt were invalid, he just fraud on them.
 The liquidators sued Mr. Salomon, since he was the one who is taking
the responsibility over the company
 ISSUE

 Whether Mr. Salomon is liable for the debt personally?

 JUDGEMENT

House of Lords: The judge rejects the argument of agency and fraud.
1. The law was clear and consist that to form a limited company you
should have at least seven subscribers.
2. The law doesn't mention any thing about how much should each
subscriber have from the shares, so it doesn't matter if each of them
have just one share or more.
3. The Principle of Separate Legal Entity.