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However, the House of Lords held that the company was a different legal person from the shareholders, and thus Mr Salomon, as a shareholder and creditor, was totally separate in law from the company A Salomon & Co Ltd.The result was that Mr Salomon was entitled to be repaid the debt as the first secured creditor.In a sole proprietorship or partnership, the owners personally liable.For all intents and purposes, all acts taken by these two company types are taken by the owners themselves.

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This is how corporations may sue and be sued, and their assets are tracked separately.

If a corporation is sued, then the owners will not have their personal belongings at risk unless those belongings were purchased with illegal returns from the corporation.

However, although the principle of separation is central to company law, there are a number of situations when the company and its members can be identified together and treated as the same.

These are the exceptions to the rule in Salomon’s Case, when the corporate veil is lifted and the reality of the situation is examined.

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