426 HARVARD LAW REVIEW controlled by the railway company "as an adjunct to or agency of" the railway company. A corporation may of course act as agent for the legal unit or units who hold its stock. The relation of agent to principal may arise by reason of any facts sufficient to create that relation under the general rules of law appUcable to agents. But the relation of corporation to stockholder is not the relation of agent to principal. A stockholder, qua stockholder, is not a principal. When an agent does an act creating a liability to a third person, ordinarily that is not the liability of the agent, but is the , liability of the principal alone; and even if the circumstances are such that the third person can subject the agent to liability, he can usually also subject the principal to liability. But when a corporation does an act creating a liability to a third person, ordinarily that liability is the Uability of the corporation alone, and is not the liability of its stock- ' holders. On the vital matter of liability for acts done, the relation of corporation to stockholder is not the same, or even similar, to the rela- tion of agent to principal. These two relations are altogether different relations, — the one relation producing results which are the exact opposite of those produced by the other relation. The agent is not liable, and the corporation is liable; the principal is liable, and the stockholder is not Uable. When a corporation is duly created, a legal unit is formed which can incur liabilities which are solely the liabihties of that legali^unit. The corporation will be in the control of the stockholders, and through this control the stockholders will benefit by the asserts which the corpora- tion acquires; they will receive dividends from time to time, and upon the dissolution of the corporation they will receive their shares of the assets; the assets, to the extent that they exceed the liabilities, ultimately reach the stockholders. But the converse is not true; the liabilities, to the extent that they exceed the assets, do not ultimately burden the stockholders. This is the most important advantage derived from in- I corporation, — there is a legal unit controlled by stockholders, so that they ultimately profit by its profit, and yet the Uabilities of this legal unit are its liabilities alone. In Salomon v. Salomon &° Co. Ltd.^ Salomon transferred a business to 'a Umited company, and became the owner, absolutely or beneficially, of all the shares which the company issued. The company became insolvent. Vaughan Williams, J., held that Salomon was personally .liable for the debts of the company, saying that the company was "a 'mere nominee of Salomon's; and the case is to be dealt with as if the nominee, instead of being the company, had been some individual agent of Salomon's to whom he had purported to sell this business. In that ' case the trustee in bankruptcy of the agent would have had a right to make Salomon indemnify the agent against the debts which he had ' contracted by the direction of his principal. The right of the liquidator is precisely the same." But this reasoning was discredited by the House of Lords, and Salomon was held not liable. "In a popular sense," said Lord Herschell, "a company may in every case be said to carry on busi- ness for and on behalf of its shareholders, but this certainly does not in » [1897] A. C. 22.
