Company Law
Company Law
1) Explain the background to the case Salomon vs. Salomon.
Mr. Salomon was a leather merchant in a large establishment. Solomon converted his business into a limited company as Solomon and Company limited with his wife and five children becoming members. Each member took one £1 share each. The company bought the business for £39,000. Mr. Salomon subscribed for 20,000 further shares. The company also gave Salomon £10,000 in debentures (i.e. Salomon gave the company a £10,000 loan, which was secured by a charge over the assets of the company). The company ran into difficulties in less than a year and liquidation proceedings began. The assets of the company were not enough to release the debentures which were held by Salomon. There was nothing left for unsecured creditors (e.g. employees). When the company failed the company's liquidator contended that the floating charge should not be honored, as the company was a ‘sham’ and Salomon should be made responsible for the company's debts. Therefore, the company was a mere agent of Salomon.
2) Explain the court’s decision in Salomon vs. Salomon.
The court’s decision in the case Salomon vs. Salomon stated that the statue was intended to allow seven or more persons to be associated for the purpose of trade to limit their liability under certain conditions and to become a corporation. The court noted that the six family members never intended to take part in the business and only held the shares to fulfill the technicality required by the Company’s act. Thus, meaning that the company was a ‘sham’ or ‘fraud’, as it was a trustee for Salomon. The decision was that Mr. Salomon abused the privileges of incorporation and limited liability and as such was bound to compensate the company’s debts.
3) Explain the decision made by the House of Lords in the case.
The House of Lords overturned the decision made by the courts and stated that there was nothing in the Act about whether the subscribers
1) Explain the background to the case Salomon vs. Salomon.
Mr. Salomon was a leather merchant in a large establishment. Solomon converted his business into a limited company as Solomon and Company limited with his wife and five children becoming members. Each member took one £1 share each. The company bought the business for £39,000. Mr. Salomon subscribed for 20,000 further shares. The company also gave Salomon £10,000 in debentures (i.e. Salomon gave the company a £10,000 loan, which was secured by a charge over the assets of the company). The company ran into difficulties in less than a year and liquidation proceedings began. The assets of the company were not enough to release the debentures which were held by Salomon. There was nothing left for unsecured creditors (e.g. employees). When the company failed the company's liquidator contended that the floating charge should not be honored, as the company was a ‘sham’ and Salomon should be made responsible for the company's debts. Therefore, the company was a mere agent of Salomon.
2) Explain the court’s decision in Salomon vs. Salomon.
The court’s decision in the case Salomon vs. Salomon stated that the statue was intended to allow seven or more persons to be associated for the purpose of trade to limit their liability under certain conditions and to become a corporation. The court noted that the six family members never intended to take part in the business and only held the shares to fulfill the technicality required by the Company’s act. Thus, meaning that the company was a ‘sham’ or ‘fraud’, as it was a trustee for Salomon. The decision was that Mr. Salomon abused the privileges of incorporation and limited liability and as such was bound to compensate the company’s debts.
3) Explain the decision made by the House of Lords in the case.
The House of Lords overturned the decision made by the courts and stated that there was nothing in the Act about whether the subscribers