Salomon v A Salomon and Company Ltd: HL 16 Nov 1896

A Company and its Directors are not same paersons

Mr Salomon had incorporated his long standing personal business of shoe manufacture into a limited company. He held nearly all the shares, and had received debentures on the transfer into the company of his former business. The business failed, and a subsequent debenture holder now said that the sums paid by the company for the business were too high.
Held: The company had been properly incorporated, and it was not for the court to speculate as to the motives and exhorbitance of the incorporation. The fact that the shares were nearly all owned by one person made no difference. A company and the person or persons constituting its directing mind are two or more separate persons in law. From the date of incorporation a limited company becomes a legal person with the rights and duties distinct from those of the members and shareholders. There is a corporate veil between them, though this might be lifted or pierced in an extraordinary case.
‘The intention of the legislature’ is a common but very slippery phrase, which, popularly understood, may signify anything from intention embodied in positive enactment to speculative opinion as to what the legislature probably would have meant, although there has been an omission to enact it.
Lord MacNaghten said: ‘For such a catastrophe as has occurred in this case some would blame the law that allows the creation of a floating charge. But a floating charge is too convenient a form of security to be lightly abolished. I have long thought, and I believe some of your Lordships also think, that the ordinary trade creditors of a trading company ought to have a preferential claim on the assets in liquidation in respect of debts incurred within a certain limited time before the winding-up. But that is not the law at present. Everybody knows that when there is a winding-up debenture-holders generally step in and sweep off everything; and a great scandal it is.’
Lord Davey said that a company is bound in a matter intra vires by the unanimous agreement of its members.
Lord Halsbury LC said: ‘it seems to me impossible to dispute that once the company is legally incorporated it must be treated like any other independent person with its rights and liabilities appropriate to itself, and that the motives of those who took part in the promotion of the company are absolutely irrelevant in discussing what those rights and liabilities are.’
Lord Herschell said: ‘It was said that in the present case the six shareholders other than the appellant were mere dummies, his nominees, and held their shares in trust for him. I will assume that this was so. In my opinion, it makes no difference. The statute forbids the entry in the register of any trust; and it certainly contains no enactment that each of the seven persons subscribing the memorandum must be beneficially entitled to the share or shares for which he subscribes. The persons who subscribe the memorandum, or who have agreed to become members of the company and whose names are on the register, are alone regarded as, and in fact are, the shareholders . . Whether they are beneficial owners or bare trustees is a matter with which neither the company nor creditors have anything to do: it concerns only them and their cestuis que trust if they have any.’


Lord MacNaghten, Lord Watson, Lord Davey


[1897] AC 22, 66 LJCh 35, [1895-99] All ER 33


England and Wales

Cited by:

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CitedBen Hashem v Ali Shayif and Another FD 22-Sep-2008
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CitedSingularis Holdings Ltd v Daiwa Capital Markets Europe Ltd SC 30-Oct-2019
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Lists of cited by and citing cases may be incomplete.


Leading Case

Updated: 25 April 2022; Ref: scu.182823

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