My Doc

nATURE OF cOMPANY

Corporate personality

Salomon v. Salomon & Co., Ltd.

(1897) AC 22 (HL)

The appellant, Aron Salomon, had for some thirty years prior to 1892 carried on business as a leather merchant and hide factor and wholesale and export boot manufacturer under the style of A. Salomon & Co. A limited company was formed in 1892 to carry on the business, the subscribers to the memorandum of association being the appellant, his wife and daughter, and his four sons. The nominal capital of the company was £40,000, divided into £1 shares; 20,007 shares were issued, of which the appellant held 20,001, the other signatories of the memorandum of association holding one share each. The appellant’s business was sold to the company for £38,782, of which £16,000 was to be paid in cash or debentures, and at the first meeting of the directors, who consisted of the appellant and two of his sons, it was resolved to pay the appellant £6,000 in cash and £10,000 in debentures. These debentures were afterwards mortgaged by the appellant to one Edmund Broderip as a security for an advance of £5,000, but eventually they were cancelled, and £10,000 fresh debentures were issued to Edmund Broderip. In October, 1893, an order was made for the winding-up of the company, at which date the company was indebted to unsecured creditors other than Aron Salomon to the amount of £7,773. An action was brought by the liquidator of the company against the appellant, which was tried before Vaughan Williams, J., who declared that the company were entitled to be indemnified by the appellant to the amount of £7,733. This decision was affirmed by the Court of Appeal.

lord halsbury, l.c. – The important question in this case - is whether the respondent company was a company at all-whether, in truth, that artificial creation of the legislature had been validly constituted in this instance; and, in order to determine that question, it is necessary to look at what the statute itself...