Question

The case of Salomon v A Salomon and Co Ltd established a number of principles. Which one of the following was NOT a principle established in Salomon case?

• A. That a person who owns the vast majority of a companys shares is to be regarded as the principal of the company or that the company is trustee for his benefit.
• B. That a companys promoters, directors and member could legitimately use corporate personality to shield themselves from certain liabilities.
• C. That the minimum member requirement does not require the members to be active.
• D. None of the above

Answer 1

The correct option is A That a person who owns the vast majority of a companys shares is to be regarded as the principal of the company or that the company is trustee for his benefit.

The principle of separate corporate personality has been firmly established in the common law since the decision in the case of Salomon v Salomon & Co Ltd whereby a corporation has a separate legal personality, rights and obligations totally distinct from those of its shareholders. The case established certain principles which were used in the subsequent cases. Some of them are corporate personality and limited liability which is the logical consequence of the existence of a separate personality. It is a corollary of corporate personality. It is important to appreciate the fact that as human beings can have restrictions imposed on their legal personality, so also can a company have legal personality without limited liability if that is how it is conferred by the statute. That is, a company may be registered as an unlimited company, without having the benefit of limited liability. Moreover, the case also elucidated the principle that minimum members of a company does take into account the members who are not active.