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Module 1 · Incorporation, separate legal personality and veil lifting

Separate legal personality is the structural premise of the whole subject, and this module supplies the moves every answer opens with: classify the company, fix its birth, state the Salomon baseline. In hypotheticals, separate personality usually gates someone else's liability rather than deciding it, and it bridges to Module 7 whenever a group company trades toward insolvency.

Cases at a glance

Case	In a line
Salomon	A shoemaker incorporated a company to buy his business. On default the House of Lords held it validly formed and separate, motive and domination irrelevant
Daimler Co Ltd	With Salomon on separateness once incorporated
Macaura	A timber farmer insured in his own name timber he had sold to his company. No claim after fire. The timber was the company's, not his
Associated Newspapers Ltd	Confirms Macaura: a sole shareholder has no rights to the company's property
Lee	A pilot who was controlling shareholder and director was also a wage-earning employee. One person may wear several hats
Industrial Equity Ltd	A holding company could not use its subsidiary's profits. Group members are separate entities
Prest	Evasion may justify piercing, concealment merely looks behind. A last resort, the doctrine incoherent (Lord Walker)
Gilford Motor Co Ltd	A company interposed to get around a restraint of trade was a sham
Sharrment P/L	Sham: appearing legally effective without the actual consequences
Equuscorp	With Sharrment on the sham category
Lewis	Sham needs intentional deception, not mere improper purpose
Re Darby	A company concealed a known fraudster promoter to attract investors. The fraud category
Jones	Property sold to a controlled company to defeat a specifically enforceable sale. Equity intervened against the mere device
Smith, Stone & Knight Ltd	The parent recovered compensation for its subsidiary's land because the subsidiary's business was in truth the parent's. The six implied-agency questions
Briggs	Control alone can never found agency. Each group company is viewed separately

Attack plan. Classify, then defend the veil. 1. Classify the company. Which registrable type (s 112(1)), proprietary or public (s 113), small or large (s 45A)? Type switches whole regimes on and off in later modules. 2. Fix the moment of birth. Registration under Pt 2A.2, existence from the beginning of the day of registration (s 119). 3. State the baseline. The registered company is a separate legal person (Salomon) whose debts, property and contracts are its own. 4. Only then ask what displaces the baseline. A court-made category (sham or facade, fraud, agency, each narrow and rarely satisfied), or a statute (holding company liability for a subsidiary's insolvent trading, s 588V, Module 7). 5. In a group, map the structure. Use ss 46 and 50 and analyse company by company. Each group member is separate. In this course the veil is chiefly essay material. In a hypothetical, separate personality usually gates someone else's liability rather than deciding it.

Types of companies and the proprietary/public distinction

Registrable types: s 112(1). Proprietary companies may be limited by shares or unlimited with share capital. Public companies may be limited by shares, limited by guarantee, unlimited, or no liability. A no liability company must have share capital, have only mining purposes as its objects, and give no contractual right to recover calls (unpaid instalments on partly paid shares) from shareholders (s 112(2)).

RULE. checklisttwistA proprietary company must have no more than 50 shareholders who are neither employees nor CSF investors, and a person who is or was an employee when they became a shareholder is not counted. It must not engage in Ch 6D fundraising conduct raising capital from the public, except for offers to existing shareholders, offers to employees or crowd sourced funding (s 113(1) to (2)).

RULE. A proprietary company is small where, as at the end of the financial year, it satisfies at least two of revenue under $50 million, assets under $25 million, and fewer than 100 employees with part timers counted as fractions. Otherwise it is large (s 45A; guarantee companies, see s 45B).

Requirement	Proprietary	Public
Members	at least one (s 114); max 50 non-employee non-CSF shareholders (s 113)	at least one (s 114); no cap
Directors	at least one ordinarily resident in Australia (s 201A(1)); if CSF, at least two with a majority resident (unless only two, when one suffices: s 201A(1A))	at least three, at least two ordinarily resident (s 201A(2))
Fundraising	no Ch 6D conduct except existing shareholders, employees, CSF	may raise from the public. Listed companies face further obligations (listing rules; extended reporting, eg s 300A directors' report)

Registration and its effects

The process runs through Pt 2A.2 (ss 117 to 123):

Lodge the application with ASIC: type, name, member, director and secretary details, registered office, opening hours if public, share details, state, and constitution if public (s 117(1) to (3)).
ASIC gives an ACN, registers and certifies (s 118(1)). Jurisdiction lies in the state specified (s 119A(2)).
Roles and shares vest in the consenting members, directors and secretary on registration (s 120). The registered office is fixed on registration (s 121). The company may pay for prior promotion and set-up expenses (s 122) and may have a common seal bearing name and ACN (s 123(1)).
Conversion between types runs through Pt 2B.7: a special resolution (s 162(1)(a)), limited to the conversions in the s 162(1) table, on application to ASIC (s 163) or by ASIC direction (s 166).

RULE. arrowThe company comes into existence, and is born, at the beginning of the day of its registration. From that moment it is the entity that owns, owes, sues and is sued (s 119).

Practicalities from the Small Business Guide (Pt 1.5, item 3). A shelf company (registered but never traded) may be used. A company using its ACN as its name must include "ACN" in the name. Contracts made before registration can be ratified, but if not, personal liability may result. Shares must be offered in proportion to existing shareholders first. The registered office must be a non-PO Box address in Australia, with the occupier's written agreement if the company does not occupy it, and open to the public for public companies. A different principal place of business must be notified. The shareholder register must be kept at the filed place.

The separate legal entity principle

RULE. arrowA company has the legal capacity and powers of an individual, so it may sue, contract and own property in its own right (s 124).

RULE. arrowOnce a company is incorporated in compliance with the statute it is a separate legal person, and neither the incorporator's motives nor one person's domination of the shareholding undoes that separation (Salomon, where a shoemaker incorporated a company to buy his business, his wife and children holding shares on his terms; when the company defaulted, the courts below treated it as his mere agent formed to gain limited liability illegitimately, but the House of Lords held the company validly formed and separate; see also Daimler Co Ltd).

Lord Halsbury LC: either the rules were followed and there is a company, or there is not. Motive is irrelevant. Lord Watson: those who trade with an incorporated company take on the risk of limited liability. Lords Morris and Macnaghten: domination of the ownership does not strip incorporation (Salomon).
Even a 100 per cent shareholder has no rights to the company's property: a timber farmer who sold his timber to his company and then insured it in his own name could not claim when fire destroyed it, because the timber was the company's, not his (Macaura; Associated Newspapers Ltd).
One person may wear several hats: a controlling shareholder and director was also a wage-earning employee under an employment contract with the company (Lee: companies can act on their own remit, even toward their controllers).
A holding company cannot use the profits of its subsidiary. They are confirmed as separate entities (Industrial Equity Ltd).

Veil lifting by the courts

Terminology. Piercing the veil: bringing the company's rights and liabilities home to the shareholders. Lifting the veil: regarding the shareholding for some limited purpose (eg identification). Much of what is loosely called piercing is really an equitable intervention against the controller. The doctrine is not coherent (Prest, Lord Walker), and agency analysis may be the more appropriate frame (Prest, Lord Neuberger).

RULE. gateThe veil is very rarely disturbed. Evasion, where a company is interposed to frustrate the enforcement of an existing right, may justify piercing, whereas concealment merely involves looking behind the veil to find what is hidden. Piercing exists only to deprive a person of the advantage of separate personality where it is abused, and it is a last resort to be refused where another route such as imposing a trust avoids it (Prest, Lord Sumption).

The court-made categories, each with what must be shown and why it usually fails:

Category	What must be shown	Authorities	Why it usually fails
Sham or facade	company interposed to evade a legal obligation, to be mistaken for something else, or to appear legally effective without the actual consequences	Gilford Motor Co Ltd (company interposed to get around a restraint of trade: a promise not to compete); Sharrment P/L; Equuscorp	high bar: improper purposes are not enough, intentional deception is needed (Lewis)
Fraud	company used to conceal identity, eg misrepresenting that the promoter is not a known fraudster to attract investors	Re Darby; Salomon (Lord Halsbury)	needs actual fraud, not mere advantage-taking
Equitable intervention	company used as a device to avoid obligations, eg selling property to a controlled company to defeat an agreed sale	Jones	the avoided obligation must be one the claimant could eg specifically enforce, and the company a mere device
Agency	subsidiary in fact conducting the parent's business as implied agent	Smith, Stone & Knight Ltd	control alone is never enough (Briggs)

RULE. compassA subsidiary can be treated as the implied agent of its parent on six questions of fact and degree. The questions ask whether the subsidiary's profits were treated as the principal's, whether the people conducting its business were appointed by the principal, whether the principal was the head and the brain of the venture, whether the principal determined what the subsidiary should do and what capital it should expend and what adventure it would perform, whether the principal made the profits by its own skill and direction, and whether the principal was in effectual and constant control (Smith, Stone & Knight Ltd, where the parent recovered the compensation for the compulsory acquisition of its subsidiary's land because the subsidiary's business was in truth the parent's, with almost no independent employees).

Control by itself is not enough. Subsidiaries usually are not fully independent, so domination cannot found agency without more (Briggs).

Lifting by Parliament

RULE. Parliament lifts the veil by statute where the courts will not. The leading example is a holding company's liability for its subsidiary's insolvent trading, treated in full in Module 7 (s 588V). In a group hypothetical, flag the statutory route the moment the court categories fail, because it usually succeeds where they do not.

Corporate groups

"Subsidiary": s 46. A body corporate is a subsidiary where the holding company (a)(i) controls the composition of its board (including where it can appoint or remove a majority: s 47), (a)(ii) controls a majority of the votes, (a)(iii) controls a majority of the share capital, or (b) the body is a subsidiary of a subsidiary of the holding company (cascading). Wholly-owned subsidiary (s 9, which also defines "holding company"): every member is the holding company, its nominee, another wholly-owned subsidiary of the holding company, or such a subsidiary's nominee. Related bodies corporate (s 50): holding and subsidiary pairs, and bodies sharing a holding company.

A wider net, "controlled entity" (s 50AA): the controlling entity (not necessarily a body corporate) has the capacity to determine decisions on financial and operating policy, weighing practical influence and any practice or pattern of behaviour. But joint capacity with another entity is not control, nor is capacity that is legally obliged to be exercised for someone's benefit other than the entity's members. The same definition serves Pt 2J.2 on acquiring and controlling shares (s 259E).
The group definitions are load-bearing elsewhere: holding company liability for insolvent trading (s 588V, Module 7), group best interests (s 187), and related bodies corporate (s 50).

RULE. arrowCompanies in a corporate group are nonetheless separate, and every transaction must be viewed from the point of view of each company individually, regardless of the commercial reality of unified management (Industrial Equity Ltd; Briggs).

Critical pitfalls and counter-arguments

Trap. Company type is a gateway fact, not scenery. Classify before applying any public-only regime, and expect the inversion.

Trap. Resisting a veil claim: the argument structure. Run it in four moves. (1) Baseline: incorporation was valid, so separateness follows and motive is irrelevant (Salomon). (2) Force the claimant into a named category. A free-floating appeal to fairness is not a ground, and the veil will not be set aside just because that would be fair. (3) Defeat the category on its own narrowness: sham needs intentional deception, not improper purpose (Lewis), evasion needs an existing right frustrated (Prest), and agency needs the six Smith, Stone & Knight indicia, not mere control (Briggs). (4) Offer the court the lesser route, trust, equity, contract, because piercing is a last resort (Prest).

Trap. The group-liability trap. Do not aggregate a group into one enterprise: the parent is not liable for the subsidiary's debts, the subsidiary's profits are not the parent's (Industrial Equity), and shared directors change nothing. The converse trap: the group structure is often planted paragraphs away from the impugned transaction, so map parents and subsidiaries before you classify. Reconstruct the structure chart first, every time.

Trap. Group facts feed other modules. Where a parent dominates a subsidiary's board, the same facts raise the parent's exposure as a holding company under s 588V (Module 7) and the shadow-director characterisation (Module 4). Do not spend those facts on a doomed veil-piercing argument when the statute gives the claimant a live route.

Exam calibration. Veil lifting is chiefly an essay topic. Prepare the essay both ways: the case for separateness (Salomon, certainty, creditors pricing the risk per Lord Watson) against the inroads (the narrow court categories, Prest's critique of coherence, Parliament's s 588V). In hypotheticals, this module's job is classification and structure-mapping in the first paragraph, and a bridge to Module 7 whenever a group company trades toward insolvency.

Take it to the practice bank

This module is drilled in the Corporations Law practice bank. Every problem there carries a realistic Pass answer, an H1 model answer, and an examiner's comment explaining the decisive fact and where the marks are lost.

Practice prompts

Take any past paper company and classify it from its name and facts: registrable type (s 112(1)), proprietary or public (s 113), small or large (s 45A), and name one regime the classification switches on or off.
Write the Salomon baseline paragraph you will open every veil question with, making motive and domination expressly irrelevant.
Take a group fact pattern and reconstruct the structure chart first, testing each company against the s 46 subsidiary limbs before touching the impugned transaction.
Run the four-move resistance to a veil claim: state the baseline, force a named category, defeat it on its own narrowness, then offer the court the lesser route.
Draft an essay skeleton arguing separateness both ways: Salomon and creditors pricing the risk against the narrow categories, Prest's incoherence critique and s 588V.

Check your understanding

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