Salomon conducted his business as a sole trader. he sold it to a company incorporated for the purpose called A Salomon and Co Ltd. The only members were Mr Salomon, his wife, and their five children. Each member took one pound share each. The company bought the business for 40, 000 pound. Mr Salomon subscribed for 20, 000 pound further shares. However, 10, 000 pound was not paid by the company, which instead issued Salomon with series of debentures and gave him a floating charge on its assets. When the company failed the company's liquidator contended that the floating charge should not be honored, and Salomon should be made responsible for the company's debts.
Lord Halsbury LC stated (at 30-31):
"...it seems to me impossible to dispute that once the company is legally incorporated it must be treated like any other independent person with its rights and liabilities appropriate to itself, and that the motives of those who look part in the promotion of the company are absolutely irrelevant in discussing what those rights and liabilities are."
From this case, comes the fundamental concept that a company has a legal personality or identity separate from its members. A company is thus a legal 'person'.
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