The Relevance of the Salomon v. Salomon Case to Modern Law

Introduction
Salomon versus A. Salmon & Co Ltd is the basic philosophy of companies’ separate legal
personality and is incompatible with all frameworks making directors to be personally
accountable for their behaviours. In its simplest, separate personality company principle leads
to the incorporated company becoming a legal person in law with similar rights and
obligation of an individual. The UK latest review of the company law has attempted the
companies’ need to be accountable to stakeholders, but it has resigned the social
responsibility of the corporates to a back seat basing on materiality of environmental, ethical
and social risks of the business, thus companies take responsibilities of these factors when
they reach the bottom line. Pursuing ethical business is almost impossible unless there is
demonstration of profits not because of managers and shareholders attitude but because of
corporate governance and legal system structures. For companies to pursue it enthusiastically
there has to be a strong business case in achieving a corporate social responsibility (Solomon,
2007, pg25).
The Salomon case began when Vaughan Williams J. took the view of a company being a
mere agent and nominee of Mr Salomon which was an incorrect law assessment. Another
misconceived decision followed stating that the company’s formation and debentures issues
were a mere scheme of enabling Mr Salomon in carrying on businesses in the name of a
limited liability company contrary to companies Act 1862 (Hutton, 2012, p30). Salomon law
decision has two important aspect, first is the legal concept from which it is known; that is’
the decision is clarified, confirmed or established, registered company fundamental principle
is distinct from its shareholders, separate legal entity and should be treated like any other
independent person with its own liabilities and rights. (Lipton, 2016, pg453)

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Primarily, using Salmon principle, a corporation helps the investing public in sharing the
company’s profit without being involved in management. A small partnership or a single
trader can carry on a business. The corporation also provides a joint venture structure;
continuing trusteeship, holding family assets, corporatized government enterprise, fund
management and the co-enjoyment of property. In modern corporate structures, there could
be no involving Britain if the British company aw adopted first the proposition of an entity
having both single effective controller and separate legal personality. Thus Salmon case is the
starting point for law exploration in Britain corporate groups and al British Commonwealth
countries that have British legal traditional influence (Ireland, 2006, pg63)
The separate personality is used today by companies in suing and being sued using their
name, entering in contracts with other parties, perpetual existence, own land and others. A
company assets remains its assets and not to its members and this has brought consequences,
that company’s liabilities and debts are its own not for members. Limited liability remains
modern law foundation, and has afforded several benefits. The most important benefit for
investors and companies is, it have encouraged membership and investments as investors has
nothing to be afraid of as they are not personally liable of any company’s liability or debt.
Separate personality disables chances of reflective loss claims, when a company suffers loss,
it its responsibility to recover it, which may be the reason why many UK companies are
limited liability companies (Academia.edu, 2013).
Limited liability is known to reduce the separation of ownership and control cost; first, it
reduces the need of monitoring management and other stakeholders. Secondly, the kind of
liability and free transfer of shares that are linked to facilitate the control of the market which
is an incentive for efficient manager performance. Thirdly, in adding to the marketability of
shares, limited liability improves the information that is fed to the market through the
increases volume of transactions. Lastly, it allows shareholders in diversifying their holdings

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and lastly, it facilitates optimal decisions of investment as positive attitude of taking risk
ensue. Limited liability is attracting small traders to the corporate not because of its
representation of an effective device that raise equal capital, but due to access to an escaping
avenue of the tyranny unlimited liability (Puig, 2016).
The principle however has faced a lot of criticism and can be abused by its fraudulent
controllers and owners of the company and an inflexible and strict application of the principle
can lead to unfair results (Ireland, 2006, pg48). In the modern law the court has accepted that
in limited cases the veil of incorporation would be lifted in when there is an agency
relationship. Today’s general position is that jurisdiction piercing as devised by the UK
courts is used sparingly and narrow. This is done to avoid uncertainties created when
legitimately subscribed shareholders of a company relies rely on the Salmon doctrine like
those dealing with the company. Secondly, a veil is only pierced when for a particular wrong
but the court do not treat companies as if they existed as a separate entity protecting the
shareholders (Academia.edu, 2013).
In the current court position, to lift the veil discretion, the veil should be lifted when a
company operates and is established as a façade or otherwise a sham. In piercing the veil by
the court, it is a necessity to show both the company control by the wrong doer and sense of
misuse impropriety as a façade or device of concealing wrongdoing. Today it is difficult to
ignore the corporate veil irrespective of being the interest of justice in ignoring limited
liability and imposing repayment of the company’s liabilities of the company’s debt (Puig,
2016).
Conclusion
Salomon v Salomon & Co Ltd (1897) AC 22 establishes that legal personality is possessed by
corporations, separate from the owners of the company and subsequent case has led to

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establishment of metaphorical veil that separate the company from directors actions will be
raised or pierced in limited circumstances. Through the principles, it is important for
corporation to be accountable for their decisions especially when omission or action leads to
death. In modern law, whether this is breach of statutory duty, negligence, health and safety
requirements, making corporations accountable for their breaches will improve organisation
safety, preventing future deaths and instilling confidence to the public that the body causing
deaths is punished (Marson & Ferris, 2015, pg590).

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List of References
Academia.edu. (2013). Salomon if decided today. [online] Available at:
http://www.academia.edu/9828444/Salomon_if_decided_today [Accessed 17 May 2016].
Hutton, C. (2012). Reading The Legal Case: Cross-Currents between Law and the Humanit.
p.30.
Ireland, P. (2006). Capitalism without the capitalist:. The joint stock company share and the
emergence of the modern doctrine of separate corporate personality, [online] 17(1), pp.40-

72. Available at:
    http://www.tandfonline.com/doi/abs/10.1080/01440369608531144?journalCode=flgh20.
    Lipton, P. (2016). THE MYTH O L OG Y O F SALOMON’S CASE AND E THE LAW
    DEALIN G WITH THE T O RT LIABILITIE S OF CORPORATE GROUPS: AN
    HISTORICAL PER S PE C TIVE.
    MARSON, J., & FERRIS, K. (2015). Business law
    Puig, G. (2016). A Two-Edged Sword: Salomon and the Separate Legal Entity Doctrine.
    Murdoch University Electronic Journal of Law, [online] 7(3). Available at:
    http://www.austlii.edu.au/au/journals/MurUEJL/2000/32.html [Accessed Sep. 2000].
    SOLOMON, J. (2007). Corporate governance and accountability. Chichester [u.a.], Wiley.