Introduction to salomon

Aron Saloman

Shoes Business Incorporation of

company

Sole
Salomon & Co.
Proprietorship
Ltd (1897)
firm
Salomn & company Limited

Saloman and
company
Limited

Directors shareholders creditors

-Aron Salomon - Aron Salomon - Aron
Salomon
- His son - Wife -
unsecured creditors
- Son
- Four daughters
Facts

 The company was purchased for 38000 pound,

 Salomon: Principal shareholder as well as principal creditor
 Salomon business failed, sales declined
Main Issue

 At that time statement of affair was like this:

 Assets: 6000 Pound
 Liabilities
a. secured debenture holder: 10000 pound
b. Unsecured debenture holder : 6000 pound
• Unsecured debenture holder claimed a priority over the debenture holder
• Company and Salomon were one and single person
High Court Decision

 Decision against Salomon

 Company and Salomon are same thing since he has the biggest part of shares,
and the other subscribers are just names and nothing else
 Appeal confirmed what was said in high court
House of Lords

 The judge rejects the argument of agency

1. The law is clear and consist that to form a limited company it should have at least seven
subscribers
2. The law doesn’t mention any thing about how much each subscriber should have from the
share

Decision: Separate legal entity

• Concept which treats a business separately from its owner
• Transactions conducted by a business are separate to those
conducted by its owners
• Body resisted in accordance with law shall obtain Separate legal
personality. (Section 42 of Mulki Civil Code)
Separate legal entity

 The effect of separate legal entity are: (company Act 2063)

• Section 7(1) Any company incorporated under this Act shall be an
autonomous and corporate body with perpetual succession
• Section 7(2) company like an individual, acquire, hold, sell, dispose of or
otherwise deal with, any movable or immovable property
• Section 7 (3) An company may sue and be also sued by its own name
• Section 7(4) An company may, like an individual, enter into a contract and
exercise the rights and perform the obligations as referred to in the contract.
• Limited Liabilities: The liability of a shareholder shall be limited on to the
maximum value of shares which he has subscribed or undertaken to subscribe.
(S8)
Conclusion

 Established new boundaries in Business law

 Registered company is an entity distinct from its member