He argued that Salomon had breached his fiduciary duty to the new company he was promoting by selling his business for an excessive price.

He said the signatories of the memorandum of incorporation were mere "dummies" and that the company was just Mr Salomon in another form, an alias or at least, his agent.

The Court of Appeal[2] confirmed Vaughan Williams J's decision against Mr Salomon, though because Mr Salomon had abused the privileges of incorporating a limited liability company, which Parliament had intended only to confer on "independent not counterfeit shareholders, who had a mind and will of their own and were not mere puppets".

But until the law is changed such attempts as these ought to be defeated whenever they are brought to light They do infinite mischief; they bring into disrepute one of the most useful statutes of modern times, by perverting its legitimate use, and by making it an instrument for cheating honest creditors.

The company was duly constituted in law and it was not the function of judges to read into the statute limitations they considered expedient.

In this particular case it is the members of one family that represent all the shares; but if the supposed intention is not limited to so narrow a proposition as this, that the seven shareholders must not be members of one family, to what extent may influence or authority or intentional purchase of a majority among the shareholders be carried so as to bring it within the supposed prohibition?

It is, of course, easy to say that it was contrary to the intention of the Legislature – a proposition which, by reason of its generality, it is difficult to bring to the test; but when one seeks to put as an affirmative proposition what the thing is which the Legislature has prohibited, there is, as it appears to me, an insuperable difficulty in the way of those who seek to insert by construction such a prohibition into the statute.Lord Herschell noted the potentially "far reaching" implications of the Court of Appeal's logic and that in recent years many companies had been set up in which one or more of the seven shareholders were "disinterested persons" who did not wield any influence over the management of the company.

Lord Macnaghten asked what was wrong with Mr. Salomon taking advantage of the provisions set out in the statute, as he was perfectly legitimately entitled to do.

It was not the function of judges to read limitations into a statute on the basis of their own personal view that, if the laws of the land allowed such a thing, they were "in a most lamentable state", as Malins V-C had stated in an earlier case in point, In Re Baglan Hall Colliery Co., which had likewise been overturned by the House of Lords.

[6] When the memorandum is duly signed and registered, though there be only seven shares taken, the subscribers are a body corporate "capable forthwith", to use the words of the enactment, "of exercising all the functions of an incorporated company".

I cannot understand how a body corporate thus made "capable" by statute can lose its individuality by issuing the bulk of its capital to one person, whether he be a subscriber to the memorandum or not.

If the view of the learned judge were sound, it would follow that no common law partnership could register as a company limited by shares without remaining subject to unlimited liability ... ...

Among the principal reasons which induce persons to form private companies, as is stated very clearly by Mr. Palmer in his treatise on the subject, are the desire to avoid the risk of bankruptcy, and the increased facility afforded for borrowing money.

By means of a private company, as Mr. Palmer observes, a trade can be carried on with limited liability, and without exposing the persons interested in it in the event of failure to the harsh provisions of the bankruptcy law.

If, however, the declaration of the Court of Appeal means that Mr. Salomon acted fraudulently or dishonestly, I must say I can find nothing in the evidence to support such an imputation.

They trusted the company, I suppose, because they had long dealt with Mr. Salomon, and he had always paid his way; but they had full notice that they were no longer dealing with an individual, and they must be taken to have been cognisant of the memorandum and of the articles of association.

If it is intended to convey the meaning that a company which is under the absolute control of one person is not a company legally incorporated, although the requirements of the Act of 1862 may have been complied with, it is inaccurate and misleading: if it merely means that there is a predominant partner possessing an overwhelming influence and entitled practically to the whole of the profits, there is nothing in that that I can see contrary to the true intention of the Act of 1862, or against public policy, or detrimental to the interests of creditors.

If the shares are not fully paid, it is as easy to gauge the solvency of an individual as to estimate the financial ability of a crowd.

It was said that the assets were sold by an order made in the presence of Mr. Salomon, though not with his consent, which declared that the sale was to be without prejudice to the rights claimed by the company by their counter-claim.

The reservation in the order seems to me to be simply nugatory.Salomon's case still represents the orthodox view of separate legal personality under English law, although a number of exceptions have since evolved.

In Williams & Humbert v W & H Trade Marks [1986] AC 368 at 429B Lord Templeman described as "heretical" the suggestion that this principle should be ignored.

Co Limited v Dominion Bank [1937] 3 All ER 555 at 564 Lord Russell of Killowen stated the principle was one of "supreme importance".

Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities."

In Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415 at paragraph 66 Lord Neuberger called Salomon: "a clear and principled decision, which has stood unimpeached for over a century".

In the decades since Salomon's case, various exceptional circumstances have been delineated, both by legislatures and the judiciary, in England and elsewhere (including Ireland) when courts can legitimately disregard a company's separate legal personality, such as where crime or fraud has been committed.

Shortly after the decision was handed down the Preferential Payments in Bankruptcy Amendment Act 1897 was passed into law as a response.