Salomon v Salomon & Co Ltd [1897] Single company

In this case, Salomon who owned a shoe-making business and operated as a sole trader, was convinced by his family to set up a company.
Under the Companies Act at that time, the minimum requirement to set up a company was 7 shareholders holding at least 1 share each.
As such, Salomon followed the required procedures in setting up the company, took one share for himself and gave one share each to his wife and five children.
The company, Salomon & Co Ltd, became a separate legal personality on receiving its certificate of incorporation.
Salomon then agreed to sell his shoe business to the company for £39,000. The shareholders of the company agreed to the price asked. Salomon was paid £10,000 in cash, was given 20,000 shares worth £1 each and a debenture for the remaining £9,000 owed him by the company.
Salomon then ran the company as its director.
As time went by, the company faced difficulty and in order to raise capital for the company, Salomon sold his debenture to Benedick. The cash raised was used for the business but did not manage to stop the company from facing more problems.
Finally, a liquidator was appointed by the creditors to realize the assets of Salomon & Co Ltd and settle the debts owed to the creditors. However, when all the assets of the company were realized, the total amounted to around £6,000.
The creditors were horrified to find out that the money was to be used to pay off the debenture as the creditor holding it was considered a secured creditor. The case was taken to the courts and the High Court held that the creditors could not recover their debts as their contracts were with the company, and not with Salomon.
However, on appeal to the Court of Appeal, it was held that since Salomon was the majority shareholder (20,001 shares as compared with a negligible remaining 6 shares) and he was also a director of the company, that the company therefore belonged to Salomon and that he should be liable to settle all the debts owing to the creditors of the company.
Nevertheless, on further appeal to the House of Lords, it was held that as Salomon & Co Ltd is a company, and therefore had separate legal personality, it could not be said that Salomon owned the company.
The company and Salomon are two legal persons in law. It is the company which has the power to enter into contracts.

Therefore,
debts of the company are the responsibility of the company and not its members;
It is the company which entered into contracts with the creditors and the creditors can only sue the co and not its shareholders. Solomon liability as a shareholder is limited.

a co may contract with its shareholder if the need arises;
The co can employ people to run the business and S was entitled to be considered an employee of the co in his capacity as director of the co.

co must sue in its name for any wrong committed against it; and
If any wrong has been committed against the co, it is the co who can sue to recover its losses.

co can own assets and shareholders have no proprietary interests in those assets.
The shoe business belonged to the co and not to Solomon once the contracts were entered into between Solomon and the co.