Limited Liability in UK: The Landmark Decision of Salomon V. Salomon and its Implications on Limited Liability
Georgetown University Law Center
February 14, 2013
The decision of the House of Lords in the Salomon v. Salomon & Co. Ltd. case firmly established the separate legal entity doctrine, also known as corporate personality. The decision meant that legal entities be treated separately from the shareholders and in turn providing them with all the benefits needed to promote economic liberalism. However, the decision in Salomon’s case also enticed criticism from various groups. By treating small private corporations as separate legal entities, the doctrine is said to have encouraged fraud and transfer of legal obligations from the individual shareholders to the corporations. It will be argued, however, that the general effect of the Salomon case is a positive one. The following points will be discussed in this paper: 1. The decision by the House of Lords in the Salomon v. Salmon & Co. Ltd. case; and 2. An analysis of the relationship between limited liability and corporate personality; and 3. Denial of corporate personality and holding the shareholders responsibly for the liability.
working papers series
Date posted: February 15, 2013
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