This is one of the most important cases in Company Law. It sets out the basic principle that a company is different from its members (or shareholders), having a different legal personality. Debts owed by it are not necessarily also owed by the members. This is the concept of limited liability. For a limited company, the members' liability is limited to the unpaid amount of their shareholding.
What is perhaps surprising, given the clearness of this principle and how well it is established, is that it comes from an appeal to the House of Lords which reversed decisions taken at the Court of Appeal and the High Court. In the lower Courts, an argument based on agency had been put forward. It was fair to say that Mr Salomon Senior was the dominant shareholder of the company and had been arguably overpaid by the company when his business as a boot seller had been incorporated.
The House of Lords said there was nothing in the legislation that indicated they had to hold one or other of the interests of the shareholders superior to the other in anyway. The company was entirley independent and it was not up to them to interpret into the legislation any limitations on this concept that they might think were expedient.
In particular, Lord Macnaghten was keen to stress that it did not matter that the bulk of the shares had gone to only one person. He went onto state that a company is not the agents of the people managing or running the business. "The company is at law a different person altogether from the subscribers to the memorandum". He goes on to summarise the reasons why people enter into business using a private company with limited liability.
No comments:
Post a Comment