Salomon v Salomon: The “One-Man Company”

Possibly the most important case in company law. ~ To check out all my videos, comics, and blog posts explaining law in simple terms, check out my website at ^^ Art by the amazing Xiao Tong! Please feel free to check her stuff out here: ~ ADDITIONAL NOTES ON THE FACTS OF SALOMON V SALOMON: Mr Salomon was actually a debenture-holder of his company. A debenture is, broadly speaking, a long-term loan, and this is only important because debentures are often “secured“ by the assets of the company (i.e. if you don’t repay, I’ll sell your stuff to get the money back instead). This made Salomon a “secured creditor“ of his own company. Why is this important? Well, it gives Salomon’s own claim against his own company “priority“ once the company goes bust and has to sell its stuff to pay off its debts. Usually, under this process, control over the company is granted to a “liquidator“ who will “liquidate“ the company’s assets and pay off its debts, starting with secured creditors and ending at unsecured creditors. And quite a lot of the time, there isn’t enough money left to pay the unsecured creditors. If the principle of separate legal personality was not upheld, then Salomon would not just have to personally account for the debts of the unsecured creditors--he would also have lost his priority over them in claiming back the money loaned.