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He sold the land and timber to a company he formed and received as consideration all the fully paid shares.The company carried the business of felling and milling timber. Macaura had earlier insured the timber against loss of by fire in his own name. He subsequently sold the plantation to a company of which he was the only shareholder, through the purchase money remained owing to him.
The court held that the income-tax authorities were entitled to pierce the veil of corporate entity and to look at the reality of the transaction to examine whether the corporate entity was being used for tax evasion.
The principle in Salomon’s Case that a company is a legally different person from those who control it represents the current law in Ireland.
For example, if I form a company called ‘Murphy & Co Ltd’ in which I own one hundred per cent of the shares and am a director and employee, legally speaking the company and myself are two distinct people.
Mr Salomon owned 20,000 £1 shares, and his wife and five children owned one share each.
Some years later the company went into liquidation, and Mr Salomon claimed to be entitled to be paid first as a secured debenture holder.