INTRODUCTION
Salmon v Salmon & Co Ltd is one of the most prominent cases which established the doctrine of Independent corporate existence. This case enumerated both partners and the company as having two separate legal persons. The most fundamental concept in company law has always been regarded as corporate personality. The most outstanding feature of a company is its independent corporate existence. a partnership has no existence apart from its members, it is nothing but a collection of partners. However, a company is considered a person by law. The concept established from this case is still widely used and is traditionally praised as the primary framework of both English company law and the entire system of international commercial Law.
FACTS:
- Salmon was a boot and shoe manufacturer who had a substantial surplus of assets over liabilities. He decided to incorporate into a limited company named Salomon & Co Ltd, which was established with seven subscribers which were Salmon, his wife, his daughter, and four sons.
- For £ 40,000, the business was transferred to the company. In payment, salmon took 20,000 shares of £1 each and debentures worth £10,000 and the remaining £20,000 were used to pay the purchase price. Salmon had 20,001 out of the 20,007 shares and his family members each held a share.
- The company went into liquidation within a year which salmon was not to blame, for it was due to the general trade depression. The holder of the debentures hired a receiver.
- Liabilities received was £6,000, debentures received £10,000, and unsecured creditors was £7,000. Thus, after paying off the debenture holder nothing would be left for the unsecured creditors.
- As the outcome, the liquidator filed a lawsuit against Salmon, holding him liable for covering the company’s trade debts.
ISSUES RAISED
- Whether Salmon & Co. Ltd. Existed as a company.
- Whether the company had been properly constituted under the legal requirements.
- Whether Salmon was accountable for the business’s debts.
ARGUMENTS BROUGHT FROM THE APPELLANT SIDE
- Learned solicitor contended that Mr. Salmon was not liable merely on the ground of having majority of shares in the company.
- It was held that Salmon was not personally liable for the debts of the corporation because the company was a legal entity from its members.
- It was held that Salmon & Co. Ltd. Was a real company fulfilling all the legal requirements.
ARGUMENTS FROM THE RESPONDENT’S SIDE
- it was held that Salmon had incorporated the company to evade personal responsibility for the debts incurred.
- It was also held that since Salmon had the majority of shares and was formed to avoid risk hence made to deceive the unsecured creditors.
- It was argued that the company was a mere sham and fraud basis made to be decisive in nature.
JUDGEMENT
- Their Lordships of the House of Lords observed that when the memorandum is duly signed and registered, though there be only seven shares taken, this did exercise all the functions of an incorporated company. As a result, the fraud argument is invalid. It was stated that the company stood as a separate legal entity.
- Additionally, it was also held that the Act stated, “nonsubscriber shall take less than one share.” It was determined by this, that the company was legitimately created since it complied with the Act.
- The statute enacts that the Act did not require that the people subscribing shall not be related to each other hence this rejected the liquidator’s argument.
- A creditor of a firm is unconcerned whether the company’s capital is owned by seven people in equal shares, where each of them has the right to earn their portions.
- The company does not lose its identity solely because one individual controls most of the firm’s capital. The company in question and its subscribers are completely different.
PRESENT STATUS
- The decision of Salmon v Salmon has failed to pass the test of time and now contradicts various judgments. Further, in recent times, it was held that the courts have restricted the scope of corporate veil piercing only as a limited equitable remedy which could only be done under two circumstances which are the “concealment principle” and “evasion principle”.
- The Salmon case has been considered to have been an error in judgment and the judgment were to differ highly today.
CONCLUSION
- The landmark case of Salmon v. Salmon & Co. Ltd. Enumerated the key principle which was a separate legal entity and limited liability of the corporations. These particular doctrines have had wide conations for the administration of the company and the protection of minority shareholders. In this case, it was observed that the company is distinct from its shareholders, and this separation is critical in understanding the rights and obligations of each entity. This decision ought to lay the groundwork for limited liability and the company as a legal person having its own rights.
