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“The Doctrine of Salomon Vs A. Salomon: Examining the Myth and
Fiction of Corporate Incorporation"
Dr. Merinda Afanui Sama
The University of Bamenda
DOI: https://dx.doi.org/10.47772/IJRISS.2025.910000051
Received: 26 November 2024; Accepted: 04 September 2025; Published: 03 November 2025
ABSTRACT
This paper sets out to examine the case of Salomon V.A. Salomon and Co. Ltd (1897). The case of Salomon
V.A. Salomon and Co. Ltd (1897) UKHL1, Commonly referred to as the ‘‘Salomon’s case’’ is a landmark
decision in Corporate law that established the principle of separate legal personality for companies. This
doctrine has been widely regarded as a cornerstone of modern company law. However, there are claims that
the Salomon’s case is a myth and a fiction. Suggesting that the doctrine established is flawed or
misunderstood. In this essay, we critically examine these claims and demonstrate that the doctrine of separate
legal personality is a valid and essential principle in the incorporation of companies.
Keywords: Company Incorporation, Doctrine of Solomon Vs A. Solomin, Fiction, Myth.
GENERAL INTRODUCTION
Background to the Study
The Salomon’s case involved a dispute over the liquidation of a leather manufacturing business owned by Mr.
Aaron Salomon Mr. Salomon incorporated his business as a limited liability company, with himself as the
majority shareholder and his family members as minority shareholders. When the company faced financial
difficulties, it went into liquidation, and the liquidator sought to hold Mr. Salomon personally liable for the
company’s debts. The central issue before the House of Lords was whether the company should be treated as a
separate legal entity distinct from its shareholders.
The principle of incorporation was highlighted in the landmark United Kingdom company law case of
SALOMON V. A. SALOMON & Co. Ltd (1896). The ruling of the House of Lords was to uphold firmly the
Doctrine of corporate personality, as set out in the Companies Act 1862, so that creditors of an insolvent
company could not sue the company’s shareholders for the payment of outstanding debts.
Following the company’s Act legislation of 1862, any seven or more persons associated for any lawful
purpose, May by subscribing their names to a memorandum of Association, and otherwise complying with the
requisitions of this act in respect of registration, form an incorporated company with or without limited
liability. The requirement of seven members were important
1
. It is frequent among contemporary law scholars
to find elaborate discussions on the basic elements underpinning corporate law. Some group of company
lawyers have listed five elements relating to this subject matter, which are; Separate Legal Personality, Limited
Liability, Transferable Joint Stock, Delegated Management and Investor Ownership
2
.In reality, the relationship
between incorporated and unincorporated companies is rather an ambiguous one. The modern association
between separate personality and limited liability was developed only after that separate legal personality was
granted to all companies in the middle of the 19
th
century and that law courts realized its full participation in
the famous Salomon’s case towards the end of the century. To better understand the development of
1
W. BLACKSTONE, Commentaries on the Laws of England, Oxford, Clarendon Press, vol. 1, cap. 18, 1765, p. 138.
2
T. D. TURNER, “The Development of English Company Law 1900”, Research handbook on the history of corporate and company
law, Cd. H.L. WELLS, CELTENHAM, E. ELGAR, 2018, pp. 117-121.
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
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Salomon’s case under English law, we should however, keep separate the two elements of (legal personality
and limited liability). Between these two concepts, the more multifaceted and complex is Legal personality.
When a company is considered as a legal person, it is able to do what most other (physical) persons can do, for
instance, entering into contracts, owning assets, delegating authority to others (agency)and suing and being
sued in its own name
3
.
Furthermore, some of the few companies that benefitted from the principle of incorporation were Joint Stock
companies and regulated companies
4
.Some scholars argued that, by the late 17
th
century, incorporated
companies enjoyed full limited liability
5
.But what was not clear is whether this Ltd liability could be
analogically applied in full or in part also to incorporated companies.
In addition, insulation can also be understood as ltd liability. The fact that the partner’s exclusion of his
personal liabilities is one of the main reasons for seeking or paying the considerable fees unofficially required
to get incorporation. In England, despite the great talent of contemporary lawyers in drafting deeds of
settlement, having full limited liability was still better than relying on trust law. It was difficult for a small
partnership to be incorporated due to the expenses needed to acquire it
6
.English law recognized a long time
ago, that a corporation would have legal personality if the entity is subject of legal rights and duties.
Historically, in London, municipal councils or charitable establishments would be the primary examples of
corporation
7
.A corporation does not suffer penalties administered by courts, but those who stand to lose their
investment will. A company will, as a separate person, be the first liable entity for any obligations its directors
and employees create on its behalf. If a company does not have enough assets to pay its debts, as they due, it
will be insolvent -bankrupt. Unless, an administrator (someone like an auditing firm partner, usually appointed
by creditors on a company’s insolvency is able to rescue the business, shareholders will lose their money,
employees will lose their jobs and a liquidator will be appointed to sell off any remaining assets to distribute as
much as possible to unpaid creditors. Yet if business remains successful, a Company can persist forever, even
as the natural people who invest in it and carry out its business change or pass away
8
.When we talk of a
fiction, it is something that is untrue, or invented or a mere story, fake news, alternative fact, falsehood,
fantasy, fancy, illusion, sham, nonsense etc.
9
Meanwhile a myth is a mere story. The court of appeal declaring the company to be a myth, reasoned that
Salomon had incorporated the company contrary to the true intent of the company. Mr. Aaron Salomon’s
scheme is a device to defraud creditors. In this write up, we shall elaborate on the case of Salomon V. A.
Salomon & Co. Ltd in relation to the principle of corporate personality.
Mr. Aron Salomon fabricated leather boots or shoes and he was the sole owner of his Company or sole
proprietor. His sons were interested in becoming partners, and so he decided to transform the company into a
limited liability Company. He sold the business at an excessive price for its value. His wife and five children
became subscribers and his two eldest sons became directors
10
.
Salomon owned the largest number of shares in the Company that is, he took 20,001 of the Company's 20,007
shares as payment for his old business. Each share issued had a value of 1% share. This transfer was done in
1892. The Company also issued to Mr. Salomon a 10,000 Pounds in debentures. On the security of his
debentures, Mr. Salomon collected an advance payment of 5000 Pounds from Edmund.
3
AMOUR, HANSMANN, KRAAKMAN and PARGENDLER, A comparative and functional approach, 2017, p. 10.
4
R. HARRIS, Industrializing English Law, Entrepreneurship and Business Organization, 1720-1844, Cambridge University Press,
2011, p. 144.
5
JONES and S. P. VILLE, ‘‘Efficient transactors or Rent-seeking Monopolists’’, The Journal of Economic History, 1996, p. 915.
6
L. BRUNORI, O. DESCAMPS, X. PREVOST, Pour une histoire européenne du droit des affaires : comparaisons
méthodologiques et bilan historiographiques, Presses Universitaires de Toulouse Capitole, 2021, p. 234.
7
H. HANSMANN & R. KRAAKMAN, ‘‘The Essential Role of Organizational Law’’, Yale Law Journal n
o
387, 2000, p. 110.
8
O. KAHN-FREUND, ‘‘Some reflections on company law reform’’, Modern Law Review, 7
th
edition, 1994, p. 54.
9
B. A. GARNER, Black’s Law Dictionary 7
th
edition, Eagan (Minnesota), West Group, 1999, p. 1046.
10
See the Landmark case of SALOMON v. SALOMON & Co Ltd (1897) AC 22 CHL.
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
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After sometime, after Mr. Salomon incorporated his business, there was a drastic decline in the sale of boots.
He was a huge supplier of boots to the government. Business was flourishing in 1890 & 1892, and his sons
decided to become shareholders in the Company. They later on became partners. Mr. Salomon had 40,000
shares & his sons 1 share each.
➢ Though there were 7 members, Mr. Salomon was the overwhelming owner of the business. The
Company gave Mr. Salomon 30,000 Pounds in cash & 10,000 in debentures (40,000 U) as payment for
transfer of business.
➢ Unfortunately, 1893 was a tough decade economical for England, the economy was down, there were
strikes, recessions & the government decided that it was good to have a range of suppliers, so that if
one collapses the others will still be running. To Salomon's Company this was a disaster & they lost a
massive portion in the government business.
➢ Lord McNauten describes how the attempts made to push the business on behalf of the new company
crammed its ware houses with unsaleable stocks.
➢ They (Salomon & the wife) tried to inject more money into the business to keep it afloat to no avail.Mr.
Salomon & wife loaned more money to put in the Company.
➢ They took the debentures worth 10,000 pounds & sold it to Mr. Broderip at 5000 pounds
11
.Mr.
Broderip paid the 5000 cash and the company promised to pay him 10,000 pounds at the end of each
month. But none of this worked.
➢ The Company failed&was put up for Liquidation
12
.
➢ Mr. Broderip filed a case against the Company claiming his 10,000 Pounds that he was promised under
the “I owe U”.
➢ When the Company failed, the Company's liquidator contended that the floating charge should not be
honored, & Salomon should be made responsible for e Company's debts. Thus, Salomon was sued
13
.
Statement of the problem
The doctrine of separate legal personality allows shareholders to abuse limited liability by evading personal
responsibility for their actions. They claim that the separation of legal personality is a fiction that enables
individuals to engage in fraudulent or reckless behavior without facing personal consequence.
Though this doctrine provides legal certainty, encourages investment, promote economic efficiency, some
shareholders still abuse the principle of corporate personality, by hiding behind the corporate veil to defraud
others.Critics of this doctrine argue that it allows shareholders to abuse limited liability by evading personal
responsibility for their actions. They claim that the separation of legal personality should be disregarded
especially when the company is used as a mere façade or a device to perpetrate fraud, injustice or wrongdoing.
Thus, it is essential to examine the extent to which the courts may pierce the corporate veil to hold
shareholders personally liable, though these exceptions do not undermine the fundamental significance and
validity of the doctrine.
Research Questions
➢ To what extent may the courts pierce the corporate veil to hold shareholders personally liable for the
company’s debt?
11
MITCHELL, ‘‘Lifting corporate veil in English courts. An empirical study’’, Financial insolvency law, 1999.
12
O. KAHUN-FREUND,‘‘Some Reflections CPY Law Reform’’, Modern Law Review n
o
54,
13
H. HASSMANN and KRAAKMAN, ‘‘The essential role of organizational law’’, Yale Law Journal n
o
587, 2000, p. 110.
13
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
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➢ To what extent does the doctrine of separate legal personality form the basis of corporate law?
➢ Can the principle of separate legal personality be considered as the cornerstone of modern company
law?
Significance of the study
The doctrine of corporate legal personality is considered as a cornerstone in modern company law today,
because of the advantages it offers. This principle motivates entrepreneurs to take risk without jeopardizing
their personal assets, encourages innovations and entrepreneurship.Removing limited liability would
discourage risk taking and stifle economic progress.
Justification of the Study
The doctrine of separate legal personality is crucial for economic efficiency and investment. It provides
certainty and predictability, allowing investors to assess risks and make informed decisions. Without limited
company liability, individuals may be to invest in companies, hindering economic growth and development.
METHODOLOGY
This research exploits both primary and secondary methods of data collection and analysis.
In this research, we have exploited the qualitative research methodology that is considered as one of the most
important and oldest forms of research methods.
Here the usage of opened questionnaires was very imperative in collecting information. The data collected in
this research were deployed using primary and secondary sources. As to the relevant primary data, we
analyzed the data using legal exegetical methods. Meanwhile, secondary data were collected from existing
literature, documented facts and policies in libraries.
FINDINGS AND DISCUSSIONS
Contractual Relationships
The separate legal personality of a company enables it to enter into contract contracts, sue and be sued in its
own name. This facilitates business transactions and provides a stable framework for commercial relationships.
Disregarding the doctrine could create reluctant legal uncertainty and undermine the foundation of contractual
agreements.
Risk Allocation
Limited liability is a fundamental aspect of modern business organizations. It allows entrepreneurs to take risks
without jeopardizing their personal assets, encouraging innovations and entrepreneurship. Removing limited
liability would discourage risk taking and stifle economic progress.
On behalf the Company, the liquidator counter claimed everything that was paid to Salomon paid back & his
debentures cancelled. He argued that Salomon had breached his fiduciary duty to the New-Company he was
promoting by selling his business for an excessive price. He also argued that the whole formation of the
Company in this way was intended as a fraud against its potential unsecured creditors in the future.
The facts of the Salomon’s case and Judgment
At the Court of first instance, Judge Vaughan Williams ruled in the case entitled Broderip v. Salomon that Mr.
Broderip's claim was valid. It was undisputed that the 200 shares were fully paid up. He said the Company had
a right of indemnity against Salomon. He said the signatures of the Memorandum of incorporation were mere
"dummies" & that the Company was really just Mr. Salomon in another form, an alias or at least, his agent.
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
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Therefore, it was entitled toindemnities from the principal. The liquidator amended the counter claim, and
award was made for indemnity.The agency argument was accepted.The case was appealed against. The Court
of Appeal confirmed Vaughan Williams J's decision against Mr. Salomon had abused the privileges of
incorporating a Ltd Liability Company, which Parliament had intended only to confer on independent not on
subordinate shareholders who had a mind of their own & were not mere puppets.
Lindley L.J held that the Company was a trustee for Salomon & as such Salomon was bound to indemnify the
Company's debts. Mr. Aron Salomon's scheme is a device to defraud creditors.Lopes L.J & Kay LJ variously
described the Company as a myth & a fiction and said that the incorporation of the business by Mr. Salomon
had been a mere scheme to enable him to carry on as before but with his personal liability for debt limited. If
assets belong to the Company, if debts belong to the Company and not by the shareholders, the Company is a
different person from its shareholders. The Company is at law a diff person from that of its shareholders. This
decision inflicted harm on the creditors of e Company. The shareholders will have consulted the register to
know if theCompany was making sales or not or was solvent before extending credit to the Company. With the
corporate veil after incorporation, the Company has a separate legal entity from its members. The Corporate
Veil in the UK is a metaphorical reference used in Company law for the concept that the rights & duties of a
company are the responsibility of that company alone. As a general principle, shareholders, directors &
employees cannot be bound by rights & duties of a corporation
14
.
The Concept has traditionally been likened to a 'veil' of separation between the legal entity of a corporation
and the real people who invest their money and labor into Company's operation. In the UK, the corporate veil
is however capable of being lifted so that people who run the Company are treated as being liable for its debts,
or can benefit from its rights, in a very limited number of circumstances defined by the courts. It generally
only happens when there is wrongdoing by the people in control
15
.
This matters mostly when a Company has gone insolvent, because unpaid creditors will wish to recover their
money if they can prove wrongdoing by the people in control. On the other hand, when we talk of limited
liability, it means that when a company goes insolvent, unpaid creditors cannot generally seek contributions
from the Company's shareholders and employees who fitted handsomely before Company's fortunes declined
or who bear primary responsibility for the losses under ordinary civil law principles
16
.The liability of the
Company itself is unlimited, Companies have to pay all they owe with the assets they have, but the liability of
those who invest their capital in a Company is limited to their shares, & those who invest their labor can only
lose their jobs
17
. However, Ltd liability acts merely as a default position. It can be contracted around, provided
creditors have the opportunity & bargaining power to do so
18
.
A bank for instance, may not lend to a small Company unless the Director of the Company gives her own
house as security for the loan. The assets are beyond reach behind the metaphorical "veil of incorporation”.
There are certain situations in Company law where the courts may decide to lift up a veil of incorporation on a
ltd liability Company, and make share-holders/Directors contribute to paying off outstanding debts of
creditors
19
. Although the Court held in this case that Mr. Salomon had registered dummy shareholders, and the
court would have made him indemnify the Company, the House of Lords held that so long as the simple
formal requirements of registration were followed, the Shareholders assets must be treated as separate from the
separate legal person that is a Company. There could not in general, be any lifting of the veil.
Piercing of the Corporate Veil
If a company goes insolvent, there are certain situations where the Courts lift the veil of incorporation on a
14
B. MARTOR and al, Business Law in Africa: OHADA and the Harmonization Process, London, Eversheds Kogan Ltd, 2002, pp.
1-29.
15
B. DICKSON, Introduction to French Law, London, Pitman Publishing, 1994, pp. 104-109.
16
OLAKUNLE OROJO, Company Law and Practice in Nigeria, Lagos, 1992, pp. 78-82.
17
J. CHARESWORTH and G. MORSE, Company Law 15th Edition, London, Sweet & Maxwell, 1995, pp. 85-90.
18
T. COLLIN, Company Law, 2nd Edition, United Kingdom, London, Teach Yourself Books, 1990, pp. 39.
19
B. DICKSON, Introduction to French Law, London, Pitman Publishing, 1994, pp.129.
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limited company, and make shareholders or directors contribute to the payment of outstanding debts to
creditors
20
. However, in the United Kingdom, the range of circumstances is heavily limited. This is derived
from the principle in Salomon v. Salomon & Co. Ltd. (Refer facts of the case above). The most painful part in
this case is that, the company went insolvent, & the Company liquidator acting on behalf of unpaid creditors
attempted to sue Mr. Salomon personally. Although the Court of Appea held that Mr. Salomon had defeated
Parliament's purpose in registering dummy shareholders, & would have made him indemnify the company, the
House of Lords held that so long as the simple requirements of registration were followed, the shareholders'
assets must be treated as separate from the separate legal person that is a company. There could not in general
be any lifting of the veil
21
.The people in Salomon's case is open to a series of qualifications. Most significantly
statute may require directly or indirectly that the Company not be treated as a separate entity. Under the
Insolvency Act 1986, Section 214 stipulates that Company directors
22
.Must contribute to payment of company
debts in winding up if they kept the business running up more debts when they ought to have known there was
no reasonable prospect of avoiding insolvency
23
.There are cases where exceptions to the Salomon principle,
though their respective scope is not wholly stable. The present rule under English law is that only where a
Company was set up to commission fraud, or to avoid a pre-existing obligation can its separate identity be
ignored
24
. In Adams v Cape Industries PLC. It is very rare for English Courts to lift the veil.
In conclusion, contrary to the claims that the doctrine of separate legal personality established in the Salomon
case is a myth and a fiction, it remains a valid and necessary principle in the incorporation of companies. The
doctrine provides legal certainty, encourages investment and promotes economic efficiency.
While there are instances, where the courts may pierce the corporate veil to hold shareholders personally
liable, these exceptions do not undermine the fundamental significance and validity of the doctrine. The
Salomon case and its doctrine continue to form the bedrock of modern company law, facilitating commerce
and economic growth.
REFERENCES
Cases
1. CONNELLY v RTZ Corporationplc(19970UKHL30 (1999) CC 533.
2. LEE'S Air Farming Ltd (1961) AC 12, a statutory corporation was set up in part & operated like the
veil was not lifted, and a director was treated as a worker of the CPY.
3. Lubble V. Cape PLC (2000) 1 WLR 1545.
4. The famous Case of Daimler Co. Ltd v. Continental Tyre and Rubber Co. (Great Britain) Ltd.)
5. Adams v Cape Industries PLC) - Chandler V. Cape PLC (2011) EWHC 951 (QB) stipulated that a
parent CPY (Cape PLC) owed a duty of care to one of e employees of the subsidiary CPY.
6. The Landmark case of SALOMON v. SALOMON & Co Ltd (1897) AC 22 CHL.
Publications
1. BLACKSTONE W., Commentaries on the Laws of England, Oxford, Clarendon Press, 1765, vol. 1,
cap. 18.
2. BRUNORI L., DESCHAMPS O. et PREVOST X., Pour une histoire européenne du droit des affaires :
comparaisons méthodologiques et bilan historiographiques, Presses Universitairesde Toulouse
Capitole, 2021.
3. CHARESWORTH J. and MORSE G., Company Law 15th Edition, London, Sweet & Maxwell, 1995.
20
CONNELLY v RTZ Corporation plc (19970 UKHL30 (1999) CC 533.
21
LEE'S Air Farming Ltd (1961) AC 12, a statutory corporation was set up in part & operated like the veil was not lifted, and a
director was treated as a worker of the CPY.
22
Lubble V. Cape PLC (2000) 1 WLR 1545.
23
(Refer the famous Case of Daimler Co. Ltd v. Continental Tyre and Rubber Co. (Great Britain) Ltd.)
24
(Refer Adams v Cape Industries PLC) - Chandler V. Cape PLC (2011) EWHC 951 (QB) stipulated that a parent CPY (Cape PLC)
owed a duty of care to one of e employees of the subsidiary CPY.
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 617
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4. COLLIN T., Company Law, 2nd Edition, United Kingdom, London, Teach yourself Books, 1990.
5. DICKSON B., Introduction to French Law, London, Pitman Publishing, 1994.
6. GARNER B. A, Black’s Law Dictionary 7
th
edition, Eagan (Minnesota), West Group, 1999.
7. HARRIS R., Industrializing English Law, Entrepreneurship and Business Organization, 1720-1844,
Cambridge University Press, 2011.
8. MARTOR B. and al, Business Law in Africa: OHADA and the Harmonization Process, London, Gmb
Pub Ltd, 2007.
9. MITCHELL C. C. J., Lifting corporate veil in English courts: An empirical study,Mansfield Press,
1996.
10. OLAKUNLE OROJO, Company Law and Practice in Nigeria, Lagos, Mbeyi and Associates, 1992.
Articles
1. ARMOUR J., HANSMANN H., KRAAKMAN R. and PARGENDLER M., ‘‘What is Corporate Law?
A comparative and functional approach’’, The Anatomy of Corporate Law, 2017, pp. 1-28.
2. TURNER T. D., “The Development of English Company Law before 1900”, in WELLS H. (Ed.)
Research handbook on the history of corporate and company law, ELGAR E. Publishing Ltd, 2018, pp.
1-28.
3. JONES S. R. H. and VILLE S. P., ‘‘Efficient transactors or Rent-seeking Monopolists? The Rationae
for eary chatered trading companies’’, in CONGLETON R. D., KAI A. K. and HILLMAN A. L., 40
years of research on rent seeing 2, 1996, pp. 509-526.
4. HANSMANN H. and KRAAKMAN R.,‘‘The Essential Role of Organizational Law’’, Yale Law
Journal n
o
387, 2000, pp. 387-440.
5. KAHN-FREUND O., ‘‘Some reflections on company law reform’’, The Modern Law Review, volume
7, Issue 1-2, 1994, pp. 54-56.
