SALOMON V SALOMON

Mr.Salomon was a prosperous shoe manufacturer.Initially he ran the business as a sole proprietor under the name of "A. Salomon & Co." He had 6 children. His children began to pester him for a share in the business.Subsequently, he incorporated his business as a limited liability Company.He took 20,001 shares and gave 1 share each to his wife and children.Subsequently, the Company began to lose money and went into liquidation. There was just enough money to pay the creditors(including Saloman) but not enough to pay the unsecured creditors.

The CA held that Salomon must indemnify the creditors. The HOL however reveresed the decision. They held that the incorporation of the Company created a seperate legal person and therefore Salomon was not liable personally.The liability was entirely the Company's and the creditors could not sue the person individually. Vijay

This principle basically ensures that the shareholders are personally liable to creditor's for their Company's debts.The Court's usually do not look behind "the corporate veil"to inquire who is behind the corporate veil.

P.S. Please note that there are exceptions to the above principle.The Courts have inherent jurisdiction to lift the veil so as to do justice to the case.