Company Law Salomon v Salomon Case
In Solomon’s case, a Jewish naturalized English man from the regions of East Prussia incorporated his family members to be partners with him in a registered business entity. His sons were not satisfied with the positions they were given in the company being servants. Instead, they kept pressing their father to give them shares in the company1. With the subjection and pressure, Solomon had no otherwise but did what most of the people ought to do and made the company to be a limited liability company. It was duly made a limited liability company after being registered by the registrar of companies. Later, when the company collapsed and was subjected to liquidation, the creditors could not be in a position to secure anything in the process.
This led to another set of problems for the company. The creditors then raised claimed to direct to the principal owner of the company Salomon that he was personally liable for the debt. In simple terms, the liquidator focused on the personality of the company distinct from its owners and this was to make the company be a sole trader. In the Salomon v Salomon case, judge B. However, the court of Appeal declaring the company to be a myth, argued out that it had illegally incorporated the company. The procedure of incorporation was not pursuant to the Companies Act and should, therefore, be responsible for the debt incurred in the course of the agency. On the contrary, the House of Lords had to reverse the ruling and held that the company had been duly incorporated.
All the legal procedures and requirements to run a company had been made. Therefore, it was a legal entity, and all its shareholders could be held responsible for their own mistakes. When the company was not able to raise the debt, Mr. Salomon could not be held personally liable for the debt. There was no possibility of separating the duties of the shareholders3. A company acquires its status after being registered under the Companies Act 2006 with the registrar of companies. Upon registration, every company must be offered a registration certificate as a proof of its incorporation. The plaintiff assumed that they were dealing with the defendant personally and the payments were made to Quigley Meats limited for having a company account.
Later when the defendant got into tight financial difficulty, he stopped paying the plaintiff and the Quigley Meet limited took legal actions against Hurley for the debt. The defendant appealed arguing that they could not be found personally liable for the debt for their company. Another important application of Salomon v. Salomon is the case of Lee v Lee’s Air Farming Ltd (1961) AC 12. The company P &O was charged with manslaughter after a disaster that took place in the face of their vessel termed as the Herald of free enterprise. The concern was raised concerning whether there was corporate manslaughter crime being considered. The case was held that manslaughter was unlawfully killing one human being by the other and the person acting for the corporate entity could be made liable of the crime.
In a real sense, the adoption of a wider view is considered to be controversial and thus should be treated with a lot of caution to avoid impending confusion among the partners. It is clear that the wider view does not directly deny the corporate status but instead it established such corporate status and made it exist in the public domain. The actions might institute further actions against the criminal who can be detained for his or her crime. The most fundamental aspect of the company law is the fact that a company registered under the company Act is considered to be an artificial legal entity which is separate and completely distinct from its key stakeholders. Fraud and misconduct are one key consideration of company law.
In the recent past, the courts have been prepared to pierce the corporate veil and outlines that in most cases, fraud is perpetuated behind the veils. That is the reason why the court would never allow the Salomon case principle party to be the leading engine of fraud. In fact, it was just a strategy used by Horne to shun his wrongdoings6. In the second case of Jones v. Lipman, it was about a man who had been contracted to sell his land and later had to change his mind in order to avoid the order of specific performance. He transferred the ownership of his property to a company to make everything work for him. The court held that the company here was used as a mask to cover up for Lipman and avoid the eye of equity.
The court of law will examine the scenario and come up with a ruling pertaining to how the corporate entity was formed. It becomes difficult for people to create public limited companies having on the back of their minds their known personal issues to benefit themselves. Honest companies that are formed by means of companies are legally accepted, but the public is usually protected by companies Act from any form of kitting. The sanctity of a separate entity will usually be held when all the possible policies have been given and proven to be valid. The people who enjoy the benefits outlined from the machinery of incorporation have to assure a capital structure is adequate enough to the size of the enterprise.
From $10 to earn access
Only on Studyloop