Smomon's Case Study: Happy DD. Salomon Case

Issue

The legal issue discussed in the case study of Happy Sdn. Bhd involves the status of the contract entered into by Marion prior to its incorporation.

Promoters

A promoter is the individual who performs the preparatory obligations important to bring a company into existence. He is endowed with trustee obligation to set the company going and may have gone into an agreement on behalf of the forthcoming fused organization to get the organization prepared for operation after its incorporation. (Arjunan, 2006) It was expressed in Twycross V Grant 1877 that a promoter is ‘one person who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose.’ (Bourne, 2000)

Shareholders was based on the amount of capital, limited liability attaching for the debts of the company. This is the meaning of "limited liability company" or the "Corporation"

Aaron Salomon is a businessman for many years engaged in the leather boots business, for quite a long time he manage his business as a sole businessman. In 1892, he was based on the British Companies Act, establishment of the Salomon & Co. Ltd. At that time, Salomon & Co. Ltd has only seven shareholders: Salomon and his wife, daughter and four sons, and directors of the Company was served by Salomon and his two sons. This is mainly to achieve the minimum number of 7 shareholders at that time legal provisions. Aaron Salomon took 20001 shares and the six other family members took one share each.. After the establishment of the company, Aaron Salomon sold his leather boots store to the new company for price £ 38,782, the company paid £ 8,782 cash to Salomon, and £10,000 was a debt to him. The company soon in trouble, a year later the company went into liquidation. After liquidation, the company's debt is £ 17,773, the company's assets is £ 10,000, if the company pay off the Salomon's security for the obligation, other unsecured creditors will be nothing. However.

Ltd’s set up is effective, because the Act only required 7 members holding not less than 1 share each. There was no fraud behavior. Salomon & Co. Ltd's establishment is legitimate. The House of Lords held that after a company incorporation, the company is a separate legal entity from its members. When the company is unable to repayment the debt, creditor only entitled to the company to debt collection, rather than by members of the company for repayment. (Arjunan, 2006) In the previous court judgment, the main issue was whether the debenture initially issued to Aaron Salomon was legitimate and therefore priority repayment to Aaron Salomon. (Sealy, Worthington and Sealy, 2010)

Dignam, A. and Lowry, J. (2009). Company law. Oxford: Oxford University Press.

Bourne, N. (2000). Essential company law. London: Cavendish.

Arjunan, K. (2006). Company law in Malaysia. Kelana Jaya, Selangor Darul Ehsan: LexisNexis.

Sealy, L., Worthington, S. and Sealy, L. (2010). Sealy's cases and materials in company law. Oxford: Oxford University