Salomon v. Salomon & Co. Ltd.

In this case, the main issue is the doctrine of corporate legal entity. After Salomon transferred his sole proprietor business into a company, he ran his business as before and he was issued a debenture. However, his business floundered and as a holder of the debenture, the assets of the company were used to pay Salomon and this caused the liquidator to sue Salomon. The Court of Appeal held that he was liable to indemnity the company against the losses. But, the House of Lords held that even though the business of the company was the same hands that received the profits, yet the company was not an agent or a trustee for the members and thus the members were not liable in respect of the company's obligations.

I agree that Salomon is a member of the company and he and the company are two separate legal entities. He has limited liability. Furthermore, he is a holder of debenture and as a separate legal entity, he had the right to be paid as he is a secured creditor. When the liquidator wanted to sue Salomon for not paying back the debt, the liquidator should be sueing the company, which is Salomon & Co. Ltd and not Salomon himself.