‘The rule in salomon v a salomon & co. ltd can truly be said to be a cornerstone of company law’
Salomon v A Salomon & Co. Ltd is one of the most famous cases that are governing Companies. The decisions that were taken in 1897 had an impact on the future legislation. At the end of the judicial procedure, Lord Macnaghten noticed that “It was not the function of judges to read limitations into a statute on the basis of their own personal view”[1].
How the rule in Salomon v A Salomon & Co. Ltd can truly be said to be a cornerstone of Company Law? The first part of this refection will show how this case has set Limited Liability companies’ specificities. Then, an explanation will be given on how the case came to lay the foundation of company law in matters of: creation, control, and insolvency of company.
Many authors refer to this case to explain the nature of Ltd companies that are simply called companies. Statute law already had established main principle of Ltds (Companies Act 1862, s 8'Where a company is formed on the principle of having the liability of its members limited to the amount unpaid on their shares, hereinafter referred to as a company limited by shares, the Memorandum of Association shall contain the following things' the third of which was 'objects for which the proposed company is to be established)[2]. when the case occurred. Nevertheless, this case has given the occasion to definitively settle the two main specificities of the companies that are: - “members have limited liability for the debts of the company”.[3]
It means that in case of insolvency of the company, creditors will not be authorized to ask payment from shareholders. Shareholders private assets are protected.
This rule is still applicable now and is a part of the Company Act 2006 section 3[4]. The law now is more precise by explaining characteristics of the different types of limited company. The distinction between limited and unlimited is primary.
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