This was a significant mark in the history of UK company law cases and is cited in courts till today. The doctrine of corporate personality was upheld by a unanimous ruling of the Lord, who held fast to the Companies Act 1862 and did not allow the creditors of the insolvent company to sue the shareholders of the company in order to pay off the debt.

Mr. Aaron Salomon, ran a business for 30 years in a large Whitechapel High Street complex making leather boots and shoes. He turned the company into a limited company as his sons wanted to become business partners. Of the 20007 shares Mr. Salomon took 20001. The price which was fixed at the contract by sale of business to company was £39,000.

It was just a little time after Mr. Salomon had incorporated the company that there were a strikes taking place in the shoe industry. The Government was Mr. Salomon’s biggest customer and they split their contract with other companies in order to divide their risk.

Mr. Salomon’s warehouse was soon full of unsold stock, he and his wife then lent the company money, and he also cancelled his £10000 debentures he had with the company. They then sought £5000 from Mr. Edmund Broderip and assigned Broderip a debenture with 10% floating interest, confirmed via floating charge. The business however continually failed and was unable to keep up with the interest payments. Mr Broderip in October 1893 then sued the company for his security, the company then went into liquidation. Broderip was paid his £5000 and his debentures were given to Salomon. Salomon then retained the floating charge over the company.

Broderip’s claim was challenged by a counter claim by the company’s liquidator, who joined Salomon as defendant and claimed that the debentures were invalid as they were used for fraud. The money was all claimed back by the liquidator, all that was transferred since the company started; withdrawal of the agreement for business transfer, repayment of the remaining purchase funds and debenture cancellations.

It has been over a century since Salomons case and similar exceptional conditions have been separated both by the judiciary and the legislature, where in cases of crime or fraud that have been committed, the court has not considered a company’s separate legal personality. Salomon’s case is still spoken of in courts today and is still met with considerable criticism.