what are the consequences of the case of salomon v salomon in company law?

2 Answers

  • 1 decade ago
    Best Answer

    Salomon v. Salomon & Co., [1897] A.C. 22 (H.L. 1896) is the seminal case that adopted the American view of corporate law.

    The best description is this: A limited liability corporation is formed either by charter or by articles of incorporation. Its formation is either an act of the king by statute, or in the United States, the legislature or the state by statute, in which the corporation is formed. There are some corporations chartered by Congress, but otherwise corporations are formed by the States after papers are filed to establish them pursuant to state law.

    Once a limited liability corporation is formed, it is considered to have its own separate corporate identity. That is, the corporation though it is a fictitious entity, in terms of it being a non-person, it still constitutes an entity that can own property in its own name, enter into contracts, and pretty much do what a person could do with some obvious limitations.

    In Salomon, the lower court of appeal felt that Salomon was using the corporation as nothing more than a mere instrumentality or an alter-ego as part of a scheme to limit personal liability.

    The House of Lords reversed the decision of the court of appeal and held that the corporation was not a mere puppet of its shareholders or members and that in fact, it had a separate existence apart from Salomon.

    The Lords questioned the judgment of the court of appeal by pointing out that Salomon had a right to take advantage of the generous provisions of the statute upon which the company had been founded.

    The ruling has been curtailed in the past 100 years by decisions which will look beyond the pale of the corporate veil and pierce through to the officers or directors who use the corporation to organize a fraud either against third parties or creditors. Furthermore, there are statutes which provide that the corporation's existence will not shield its officers, directors or employees from criminal liability.

    The other name for the decision is "The Corporate Rule".

  • 1 decade ago

    What state is this located in...and what area of law is this in..company law is not a regarded area of law...do you mean corporations law?

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