Ratio Decidendi
A validly incorporated company is a separate legal person from its shareholders, even where one shareholder holds virtually all the shares. The company's debts are its own and shareholders are not personally liable.
Facts
Mr Salomon incorporated his boot-making business as a limited company, taking most shares himself. When the company became insolvent, the liquidator argued Salomon should be personally liable for the company's debts.
Judgment Summary
The House of Lords unanimously held that the company was a separate legal person. Mr Salomon was not liable for its debts. The company was validly formed and the law did not require shareholders to be independent of each other.
Key Quotes
"The company is at law a different person altogether from the subscribers to the memorandum; and, though it may be that after incorporation the business is precisely the same as it was before, the company is not in law the agent of the subscribers."
— Lord Macnaghten
Subsequent Treatment
The cornerstone of company law establishing the separate legal personality of companies.