This article is written by Shivani Kumari, a student at Lloyd Law College, Noida
16th November 1896
(1896) UKHL 1
LORD HALSBURY L.C., LORD WATSON. , LORD HERSCHELL. , LORD MACNAGHTEN. , LORD MORRIS. , LORD DAVEY.
The companies Act, 1862 (UK)
Aron Saloman had a business as a leather merchant in England. His family includes four sons, a daughter, and a wife. His sons wanted to become his business partners, so he converted his business into a limited company under the statute established by law. A. Salomon & co ltd purchased Mr. Salomon’s business for above market value making his two elder sons as director and his whole family as a subscriber of 1 share each. Salomon allotted himself 20,001 shares a total out of 20,007 shares. The price was satisfied by £ 10,000 in debentures, conferring a charge over all the company’s assets, £ 20,000 in fully paid up £ 1 shares, and the balance in cash. Eventually, within a year the company suffered loss and went into liquidation leaving nothing for his unsecured creditors. Mr. Saloman claimed the amount of the remaining company’s assets under his retained debentures. The company’s liquidators took an action against Saloman holding him liable to indemnify the company against the company’s trading debts.
1. Whether A. Saloman & co ltd was a company under the statute?
2. Whether the company was formed to fraud and sham the creditors?
3. Whether Saloman was eligible for the claimed amount?
The sole guide for this case is the statute itself. The act provided that any seven or more persons with a lawful purpose can constitute a company by subscribing their names to the memorandum of association. The act also states that “No subscriber shall take less than one share” here the seven members are an actual living person and are holding the required share. So, undoubtedly this is a real company. The House of Lords further stated that the company does not lose its identity if the bulk of its capital is held by one person of seven other persons, it all depends on the will of the subscribers
After several sets of proceedings in lower courts, the appeal landed in the House of Lords. The court held that A. Saloman & co ltd was legally constituted and it was not the role of judges to read limitations into the statute in a manner that they considered preferable and the companies Act 1862 (UK) did not require shareholders to be independent of the majority shareholder. Mr. Saloman was awarded the amount under his retained debentures.
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