CASE STUDY ON
Salomon vs Salomon
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| Salomon vs Salomon |
Background:
Aaron Salomon was a leather merchant. He ran his manufacturing leather shoes business as a sole trader. After some years, Salomon decided to incorporate his business as a limited company, Salomon & Co.Ltd.
Journey of Salomon & Co.Ltd
Salomon & Co.Ltd acquired the sole trader/ proprietorship business of Aaron Salomon and the consideration paid for this was 30,000 pounds.
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| Salomon vs Salomon case study |
At the time, the legal requirement for incorporation was that at least seven-person subscribers as members of a company.1st Member: Aaron Salomon acquired 20,000 Equity shares
2nd Member: His wife and acquired 1 share
3rd Member: His Daughter and acquired 1 share
4th,5th,6th & 7th Member: His 4 sons and acquired 1 share each
Directors:
- Aaron Salomon
- Son of Aaron Salomon
- Aaron purchased debentures worth 10,000 pounds
Salomon & Co.ltd faced financial difficulties and then moved to the liquidation process and that time.
Salomon & Co.ltd assets was 6,000 pounds.
Salomon & Co.ltd liabilities was 16,000 pounds.
Unsecured Creditors demand firstly fulfill their claims instead of the secured creditor and the one who is Aaron Salomon because they were saying, Aaron Salomon, made Salomon & co. ltd and he is the member as well as director of the company.
Conclusion:
Court issue verdict that company is separate legal entity it's mean Salomon & Co.ltd and Aaron Salomon both are a different person from each other and Salomon & Co.ltd is an artificial person & Aaron Salomon is a natural person as, court decided to compensate Aaron Salomon firstly.at
The liquidator on behalf of unsecured creditors claimed/alleged that the company was essentially an agent of Salomon and therefore, Salomon being the principal was personally liable for its debt.
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