THE DOCTRINE OF PIERCING THE CORPORATE VEIL: ITS LEGAL AND JUDICIAL RECOGNITION IN ETHIOPIA 79
company is through its major attributes, namely, separate legal personality and
limited liability of shareholders\members.
1.1. Separate legal personality
When a company fulfils the requirements laid down for its formation, the law
considers it as a person. That is, in the eyes of the law, it is a person capable of
enjoying rights and assuming obligations quite different from the physical
persons who brought it into existence or who may be its members at any given
time.3 The rights and obligations of the individual members are not those of the
company and vice versa.
The decision of the House of Lords in the case of Salomon v. Salomon & Co.
Ltd  which revised the decisions of the Higher Court and the Court of
Appeal marks the beginning of the judicial acceptance of the company as a
separate legal entity. The facts in Salomon V. a Salomon & Co. Ltd are given
below (as stated in Stephen Griffin, Company law: fundamental principles).4
The proprietor of a small but successful business, Mr. Salomon, formed a
business as a limited company in accordance with the registration provisions
contained within the Companies Act 1862. Section 6 of the Act provided that
“seven or more persons together could form a business provided that it was
associated for a lawful purpose.”5
The seven subscribers to the Salomon & Co. Ltd were Mr. Salomon, his wife
and their five children. The company, A Salomon & Co. Ltd, purchased Mr.
Salomon’s business in a solvent state for a consideration to a value of
approximately £39,000. Mr. Salomon received £20,000 a fully paid-up £1
shares, an issue of debentures to the value of £10,0006. The remaining six
members of Salomon’s family were each allotted a £1 share in the company.7
Unfortunately, a Salomon & Co. Ltd did not prosper. Mr. Salomon’s
debentures were transferred to Mr. Broderip in return for £5000; this amount
was then pumped back to the company by Mr. Salomon. Despite further efforts
on the part of Mr. Salomon to keep the company afloat, less than a year after its
3 Seifu Teklemariam (1968), Piercing the corporate veil: its application to private
limited companies and share companies in Ethiopia, Senior Thesis, Faculty of Law,
Haile Selassie I University, (unpublished), p. 4.
4 Griffin Stephen (2004), Company law: fundamental principles, (4th ed.), Pearson
Longman, p. 6.
5 Ibid, Salomon v A Salomon & Co Ltd  AC 22 (House of Lords).
6 A debenture acknowledges a loan or other credit agreement between the company and
its creditors and is normally secured against the assets of the company. In Salomon’s
case the debenture was secured by means of a floating charge and took the remainder
of the sale price in cash.
7 Griffin Stephen, supra note 6, p. 6.