SALOMON V SALOMON & CO LTD

Salomon v Salomon & Co Ltd

Salomon v Salomon & Co Ltd

In the foreign legal practice for a long time there is a concept 'lifting the corporate veil' ('piercing the corporate veil'), which means "lifting the corporate veil," or "veil." When "lifting the corporate veil" is placing the responsibility of an independent legal entity (the here and hereafter under the legal entity is understood such organizational-legal form of legal entity in which the liability of the founders (participants) of the legal entity is limited by the size of their share (participation) in the share capital of a legal entity.) to third parties (Gooley 2005, p 112).

In practice, this term is used in three cases:

1. When the court in addressing the issue of liability entity departs from the principle of limitation of liability of the founders (participants) and puts the responsibility on them;

2. When the court ignores the separateness of legal entities involved in the formation of a holding or a group of legal entities and, based on the principle of "single economic unit", blames a separate legal entity into separate legal entities of the holding or group;

3. When a court imposes liability on the government entity (Note the authors: This article will consider only the second case, while the first and third are the subject.) (Ford 2007, p 101)

The value of the shareholding and the income from it can be taken into account by the Court as a 'financial resource' under s.25 Matrimonial Causes Act 1073 (MCA). But the extent to which the court can reach into the firm, pluck out assets and vest them in the other spouse is extremely limited. A company is a legal entity distinct from its members who constitute it. Even where a single member holds virtually the entire share capital, a firm is to be differentiated from him. It is regarded as an entity having an independent corporate existence. Any of its members can enter into contracts with it in the same manner as any other individual. The firm's money and property belong to the firm and not to its members. The importance of the separate entity of a firm was very well brought out in Salomon v Salomon & Co Ltd (1897) A.C. 22 (Pollock & Maitland 2002, p 486).

Salomon sold his boot manufacturing business to a newly formed firm, Salomon & Co Ltd for £30,000. His wife, one daughter and four sons took up one share of £1 each. Salomon took 20,000 fully paid-up shares and debentures to the value of £10,000 guaranteed by a floating charge. Subsequently, the firm had to be wound up. At that time, its assets were worth £6,000 and its liabilities amounted to £17,000 of which £10,000 was due to Salomon (guaranteed by debentures) and £7,000 due to unguaranteed creditors (Arnold 2007, p 185). The non-guaranteed creditors claimed that Salomon and the firm was one and the same person, and that the firm was a mere agent for Salomon, so that they ...