Salomon v. Salomon & Co. Ltd.,
Salomon sold his boots business to a newly formed company for 30,000. His wife, one daughter and four sons took up on share of 1 each. Salomon took 23,000 shares of 1 each and 10,000 debentures in the company. The debentures gave Salomon a charge over the assets of the company as the consideration for the transfer of the business. Subsequently when the company was wound up, its assets were found to be worth 6,000 and its liabilities amounted to 17,000 of which 10,000 were due to Salomon, who is secured by debentures, and 7,000 due to unsecured creditors. The unsecured creditors claimed that Salomon and the company were 'one and the same person' and that the company was a mere agent for Salomon and hence they should be paid in priority to Salomon.
Held, the company was, in the eyes of the law, a separate person independent from Salomon and was not his agent. Salomon, though virtually the holder of all the shares in the company, was also a secured creditor and was entitled to repayment in priority to the unsecured creditors.
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