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In forming a company, its shareholders may seek to minimise the liability of the company and themselves to creditors, the pivotal case of Salomon v Salomon illustrates the divisions of the courts with regard this issue. Salomon established several key points of company law. It shows that the most important characteristic of a registered company is that it is both an association to its members and a person separate from its members.
Mr Salomon, in brief, converted his existing, successful business into a limited company of which he was he managing director and principal shareholder, with his wife and five children each having one share to satisfy the Joint Stock Companies Act 1844. The company was placed in insolvent liquidation, and the issue was whether the company was a façade for Mr Salomon to carry on business in the name of a company with limited liability. The Court of Appeal and the House of Lords took starkly different viewpoints, however the outcomes may be attributable to what part of Mr Salomon’s behaviour is emphasised .
Approximate Word count = 759
Approximate Pages = 3
(250 words per page double spaced)
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