1.Explain the case of Salomon v Salomon & Co Ltd. Why was this case of such importance to small business owners.

NOTE: Use your own words at all times. Answers that are copied from the slides or internet will NOTbe marked.

Salomon v Salomon & Co Lid [1895] 2 Ch 232 A. Salomon & Company, Limited FACTS: At the end of the 19th century, Mr Salomon owned a successful boot-making business in England. To enable his sons to become co-owners, Mr Salomon converted his business into a company - thereby allowing various family members to become shareholders. PROBLEM: Due to market collapse of 1895, the business failed, leaving creditors (like Mr Broderip) angry that the value of the company's assets (eg machinery, trading stock etc) was insufficient to pay all the company's unsecured creditors LEGAL ACTION: Mr Broderip suedSNAPSHOT OF PARTIES TO THE LEGAL ACTION A. Salomon & Company, Limited Trade Creditors: Owed $$ Mr Salomon owns: $2,000 capital Salomon & Co Ltd $10,000 debentures owns: E1000 cash Boot-making business E8000 (goodwill & business assets) Mr Broderip owed: $1,500 (loan)