Case Study Of Solomon & Co. Ltd

A company is recognized as a separate legal entity and yet in reality, it is an association of persons who are in fact beneficiaries of the corporate property. It is therefore understood that corporate personality of the company can be used as a medium of committing fraud or illegal acts. Now, there is arises a paradoxical problem pertaining to the important legal question : Who accords for the liability? Who can be held responsible? The notion of corporate personality does not obviously create liability on artificial persons. Logically, a company cannot be put behind bars or prosecuted for its criminal acts. Thus, their arises a need for the identification of the persons who are guilty of the offence and are hiding behind the facade of …show more content…
Due to the overwhelming response to his leather business he decided to convert his business into Limited Company- Solomon & Co. Ltd. The company consisted of Solomon, his wife and five of his children as members. The business of Solomon for £39,000 was purchased by the company, the purchase consideration was paid in terms of £10,000 debentures creating a charge over the company’s assets, £20,000 in fully paid £1 share each and the balance in cash. Within a year of incorporation of a company, it ran into financial crisis and liquidation proceedings commenced. The company assets were not even sufficient to discharge the debentures (held entirely by Solomon himself). And nothing was left for the unsecured creditors. The House of Lords held the constitution of the company as valid, since only 7 members were required by the Act holding at least one share each. It said nothing about their being independent, or that there should be anything like balance of power in the constitution of the company. Hence, the business belonged to the company and not to Solomon. Solomon was its agent. The company was not the agent of …show more content…
The doctrine of limited liability has played an important role in the development of the trade and commerce. It has enabled the businessmen to invest their money in business run by the corporate form of organization with limited risk or liability. This has encouraged the investor to invest their capitals in business and thereby has encouraged the aggregation of small sums into large capitals. Besides, in the case of company with limited liability, it is possible for every member to know the exact extent of his risk. It also possible to make the liability of the member of the company limited without restriction on their participation in