Case Name and Citation:

Salomon v. Salomon & Co. Ltd., 1897 AC 22.

Facts:

Mr. Salomon was a sole trader who incorporated his business into a limited liability company, with his family as shareholders and himself as the majority shareholder. The company issued debentures to Mr. Salomon, which were secured by a floating charge over the company's assets. However, the company later went into liquidation, and the liquidator argued that Mr. Salomon should be personally liable for the company's debts, as he had used the company as a mere agent or façade to avoid his obligations.

Legal Issue:

The main legal issue was whether the corporate veil should be pierced, holding Mr. Salomon personally liable for the company's debts.

Procedural History:

The lower courts initially ruled in favor of the liquidator, holding Mr. Salomon liable. The case was then appealed to the House of Lords.

Court's Holding and Rationale:

The House of Lords held that Mr. Salomon was not personally liable for the company's debts. The court emphasized the separate legal personality of a corporation and stated that as long as the company was validly incorporated and operated within the legal framework, its shareholders could not typically be held liable for its debts beyond their investment. The court noted that while there may be exceptional circumstances where the corporate veil could be lifted, such as fraud or improper conduct, those circumstances were not present in this case.

Comments:

Salomon v. Salomon & Co. Ltd. is a landmark case in corporate law as it established the principle of separate legal personality for corporations. This case reinforced the idea that a company is distinct from its shareholders, and unless there is evidence of wrongdoing or abuse, the courts will generally respect this separation. It also highlights the importance of properly incorporating and maintaining corporate formalities to enjoy the benefits of limited liability.