Q:

What was the Salomon v. Salomon case?

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Quick Answer

Salomon v. Salomon was a case in Great Britain in 1897 that established the concept of the "corporate veil," according to McGill University. This case established the corporation as a different entity than the people within the corporation, specifically the shareholders. The case also created legal liability against the corporation instead of an individual person.

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Full Answer

Salomon v. Salomon involved the Salomon family, who owned the majority of shares in a leather company, according to The National Archives of the United Kingdom. After a strike, the business lost profits and went bankrupt. The value of the corporation at the time of insolvency was below the value of the debts. Creditors sued the individual shareholders for the rest of the funds. Even though the majority owner of the company was one family, the House of Lords held that a corporation is separate from the individuals. Only the corporation held the debt; the individual shareholders did not hold the debt. As part of a legal incorporation, the liability was more minimal than that of a partnership or sole proprietorship, according to Examination Preparation Services.

Though Salomon v. Salomon was a case in English common law, courts in other countries cite the case as part of corporate law, according to WIkipedia. Subsequent cases, however, limit the corporate veil and provide instances for lifting it.

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