The Liability of a Holding Company for the Debts of Its Subsidiary: Is Salomon Still Alive and Well
![handle is hein.journals/soaf115 and id is 336 raw text is: THE LIABILITY OF A HOLDING
COMPANY FOR THE DEBTS OF ITS
SUBSIDIARY- IS SALOMON STILL
ALIVE AND WELL?*
DARIO MILOt
Part-time Lecturer in Law, University of the Witwatersrand, Johannesburg
INTRODUCTION
Aron Salomon v A Salomon & Co Ltd' is over a hundred years old. The
judgment is primarily associated with the salutary company-law principle
that a company, even if closely held, is a legal entity distinct from its
members (the separate-entity principle).2 It follows that the members of a
company are not per se liable for the debts of the company.3 In addition,
the members of a company enjoy limited liability: on a winding-up, the
most that a member can lose is his or her claim to a return of his or her
contribution to the share capital (the limited liability principle).4
* This article is based on my research report submitted in partial fulfilment of the degree of
LLM at the University of the Witwatersrand. I am deeply indebted to Mike Larkin, Julia Boltar
and Faizel Ismail for their extremely useful comments on previous drafts of this article, and to
Michael Katz for inspiring it. I remain solely responsible for any errors or omissions. This article
is dedicated to the memory of Clinton Milo.
t BCom LLB LLM (Witwatersand).
' [1897] AC 22 (HL), hereinafter 'Salomon'.
2 Cf Lord Halsbury LC in Salomon supra at 30: ...[O]nce the company is legally
incorporated it must be treated like any other independent person with its rights and liabilities
appropriate to itself....' And see Lord Macnaghten at 51: 'I cannot understand how a body
corporate... can lose its individuality by issuing the bulk of its capital to one person.... ' The
locus classicus of South African law that echoes this principle is Dadoo Lid & others v Krugersdorp
Municipal Council 1920 AD 530, where Innes CJ held that '[a] registered company is a legal
persona distinct from the members who compose it' (at 550).
3 See generally Hahlos South African Company Law Through the Cases: A Source Book 5 ed
(1991) byJ T Pretorius, P A Delport, Michele Havenga & Maria Vermaas 13ff.
4 Cf M S Blackman 'Companies' in W Ajoubert (ed) The Law of South Africa First Reissue vol
4 part 1 (1995) (hereinafter 'Blackman (LAWSA) Part 1') para 28. This applies only to the more
common form of company, the company with a share capital. Section 92(1) of the Companies Act
61 of 1973 (hereinafter 'the Act') prohibits the allotment or issue of shares unless the full issue price
of or other consideration for the shares has been paid to and received by the company. On the other
hand, with a company limited by guarantee, each member is liable to contribute to the assets of the
company in the event of its being wound up to the extent that he or she has undertaken to do so
(with a minimum liability of one rand): s 52(3) of the Act.](ViewImageLocal?handle=hein.journals/soaf115&div=37&collection=&method=preview&ext=.png&size=3)
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The Liability of a Holding Company for the Debts of Its Subsidiary: Is Salomon Still Alive and Well
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