Separate Legal Entity Principle Australia

Grondal Bruining is a business and litigation firm dedicated to providing the highest quality legal services. We focus on energy and utilities, oil and gas, resources and other commercial and industrial sectors. However, this protection is not absolute – a court can ignore this principle and “break the corporate veil” to deny the protection normally granted and hold a shareholder liable for the company`s actions. As noted above, the presence of corporate groups in both Australian and international business activities has emphasized the continued application of the principle of separate legal personality and the veil of incorporation in a simplified and clear manner, as it has developed since Solomon. This is an unresolved area of law that is the subject of much discussion and debate, both in the courts and in academia. [39] The principle established in Salomon[16] was applied in Lee v. Lee`s Air Farming Ltd,[17] which held that a sole director of a corporation acted as an employee of the corporation, separately and separately from the corporation`s corporation. Similarly, in Macaura v. Northern Assurance Co Ltd, a sole director was not considered to own the assets of his or her corporation. [18] More recently, the same principle of separate legal personality has been considered applicable to separate entities within an associated group,[19] but this is an area where the law may still be unclear. [20] and will become an important discussion in this document below. High Court decisions such as Walker v Wimborne [1] and Industrial Equity Ltd v Blackburn [2] have a strict application of the separate entity doctrine and have shown that they are not prepared to break the corporate veil in the case of corporate groups.

The principle of autonomous legal existence is a fundamental principle in the field of company law. According to this principle, the corporation is treated as a separate entity from its members. The group of companies may hold its assets in one unit, but the business unit you are dealing with has no or minimal assets. Or there may be confusion as to which entity within the group is the right one and where the relevant rights and obligations lie. You can enter into a contract with a subsidiary within a group, but it is not the group company that actually owns the asset you wish to trade, or it does not have the practical ability to provide the relevant services you need. Alternatively, the same mistakes can be made within the group, for example by obtaining the appropriate licences in the name of the asset holding company if they are to be held by the operating group. [3] This principle was already established when the House of Lords heard the case: R v Arnaud (1846) 9 QB 806. However, this fact should not diminish the value of the Court`s decision to give this concept the “imprimatur of high judicial opinion”. See Roman Tomasic and Stephen Bottomley, Corporations Act in Australia (The Federation Press, Sydney, 1995), p. 40; and P Ireland, “The Triumph of the Company Legal Form, 1856-1914”, in Adams J (ed.), Essays for Clive Schmitthoff (Professional Books, Abingdon, 1983), p. 58.

Many companies in Australia are run as a group structure consisting of several companies over which a parent company has control. If the above principle is applied to groups, each member company of a corporate group is an independent legal entity. Therefore, not all group companies should be liable for the actions of other group companies. As a member, you (as a member) are not responsible for the debts of the Society. Your only financial obligation is to pay the company any unpaid amount on your inventory if asked. However, directors of the corporation may be held personally liable if they are found guilty of breaching their legal obligations. It is preferable that the corporate group concerned has a clearly defined corporate structure and a clear understanding of the role of each entity in the corporate group in order to avoid confusion as to ownership, liability, needs and liability. You must also ensure that both parties ensure that the contracting group entity is the group entity that is actually capable of performing the contract or that actually needs the relevant rights guaranteed. It is a well-known principle that a corporation is considered a separate legal entity when it is created. It acts independently and shareholders are not liable for the company`s debts.

For this reason, businesses are the most widely used business structure in Australia and globally. Companies and directors have important legal and reporting obligations that they must comply with.