Salomon v A Salomon & Co LTD Essay Sample
- Pages: 3
- Word count: 583
- Rewriting Possibility: 99% (excellent)
- Category: debt
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Introduction of TOPIC
Mr.Salomon was a wealthy man and he was a boot and shoe manufacturer trading on his own sole account. In 1982, he decided to convert the business into a limited company. Fot this purpose, “Aron Salomon and Company Limited” was formed with liability limited by shares. The memorandum of the company was subscribed by Aron Salomon, his wife and five of his children. The intention of having his own family members in the memorandum is to retain the business in their own hands. The company purchased the business for £39,000 and the price was satisfied by a sum amounting to £20,000 was paid to Aron Salomon who then immediately returned it to the company in exchange for fully paid shares; a sum amounting to £10,000 was paid in debentures for the like amount and the balance sum with the exception of about £1,000 which Aron Salomon seemed have received and retained went in discharge of the debts and liabilities of the business at the time of purchase.Apart from the fully paid shares, Aron Salomon received for his business about £1,000 in cash and £10,000 in debentures.
Both Salomon and his wife lent their money to the company to reissue the debentures to Broderip who had advanced the company some money when t
he business did not turn out well. Broderip’s interest was not paid when it become due. Therefore,
Upon finding the judgement, Vaughan William J held that the company was only an agent for Aron salomon and therefore he is personally bound to pay the unsecured creditors of the company. The House of Lords however reversed the decision of the Court of Appeal stated that Salomon was not personally liable. This is because the company did not conduct the business as an agent nor as a trustee of Salomon. Additionally, the judgement stated that “the company is different person altogether from subscribers. and, though it may be that after incorporation the business is precisely the same as it was before and same persons are managers, and same hand receive the profit, the company is not agent for subscriber or trustee for them. Nor are the subscribers as member liable, in any shape or form, except to the extent and manner prescribed by the Act.” Therefore, the business is belong to the company and not belong to Salomon.
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