Salomon v. Salomon & Co. Ltd [1897] AC 22
Citation: House of Lords [1897] AC 22
The foundational English House of Lords decision establishing that an incorporated company has a legal personality distinct from its members and shareholders.
Material Facts
Aron Salomon ran a prosperous leather and boot manufacturing business as a sole proprietor. He formed a company, Salomon & Co. Ltd., consisting of himself, his wife, daughter, and four sons. Salomon took 20,001 shares and £10,000 in secured debentures creating a floating charge over the company's assets. During trade depression, the company went into liquidation. Unsecured creditors claimed that Salomon and the company were one and the same entity.
Legal Issue Raised
Whether an incorporated company possesses an independent corporate identity distinct from its subscribers and dominant shareholder.
Judgment & Ratio Decidendi
The House of Lords unanimously reversed the Court of Appeal, holding that once a company is legally incorporated in compliance with statutory formalities, it is an independent legal entity entirely separate from its shareholders and directors. Salomon as a secured debenture holder was entitled to priority payment over ordinary unsecured creditors.