Corporation Law

0Running head: CORPORATION LAW
CORPORATION LAW
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1CORPORATION LAW
A company is a kind of business structure which uses to carry out the business of people.
It is a separate legal entity which different from a partnership or sole trader. The company like
any other natural person can have the same rights to incur debt, sue other person or being sued.
Owner of the company or the shareholders of the company have limited personal liability and
they are not liable for debts of the company. A company has to register under the Australian
Securities and Investment Commission and the directors, officer of the company have legal
rights under the corporation act 2001. A company name indicates its legal status; the Pty Ltd
Company and Ltd Company should be mentioned at the end of the company name. In the case of
Macaura v Northern Assurance Co Ltd [1925] AC 619 it was decided that shareholders of a
company do not have any ownership regarding the company’s property.
Corporate veil separates the legal responsibility of a shareholder from an organization
(Stubbs and Rogers 2013). Always the shareholders and directors of a company are not liable for
the company’s action. A court can decide whether the shareholders and directors are responsible
for the company’s action or not. A corporate veil exists when a company is registered as a
separate legal entity and the members are different from the entity. In certain times corporate
personality from the company can be done any illegal or improper acts and commit frauds
(Chaiton 2013). An artificial person cannot do anything fraudulent and illegal act, so the
corporate personality has to remove the persons who are really guilty for those acts. Courts have
to decide whether the shareholder or directors of the company is liable for the debts for its
corporation despite the rule of separate personality and limited liability (Freudenberg 2013). In
the case of Salomon v Salomon & Co [1897] AC 22 the House of Lords stated that the company
is a separate legal entity from the shareholders (Lipton 2014). In this case it was stated that
Solomon is the only trader of the shoe and leather merchant company. He sells his business

2CORPORATION LAW
which he handles as a sole proprietorship to a company named Salomon Ltd, where his family
member including him is shareholders. The company fails to pay insufficient funds to outsiders
and Salomon borrowed money from Boderip. Salomon’s debentures mortgage for the loan, the
company failed to carry the business afterwards and Boderip liquidates the assets and claims the
money for a loan which he was given to Salomon. Court decided that the company acts as an
agent of Salomon and the company was entitled to get the principles assets.
In particular circumstances a court can lift the corporate veil where creditors and the third
party can claim the money from the assets of company directors or the members. A court lifts the
corporate veil in rare and circumstantial cases so it’s very difficult to provide clear guidance
when the court lifst the corporate veil (Bello and Michael 2014). Court will lift the corporate veil
if a person uses the company for any improper and dishonest purpose like to avoid the existing
legal duty. When members use the company with intension for not giving efforts on a transaction
like contracting and make sure that party never pay their debts the court may lift corporate veil
(Lee 2015). In other circumstances when a court may lift the veil is to avoid the existing legal
duty controller use the company as a vehicle for fraud.
In the case of Pioneer Concrete Services Ltd v Yelnah Pty Ltd, the term lifting of
corporate veil is defined when an individual company creates separate legal personality; courts
will decide the real controllers of that company. The court has to refer to the looking beyond or
lifting the corporate veil when it examines the company operating mechanism.
Under the case of Lee v. Lee’s Air Farming Ltd stated that there was a valid contract
between both parties’ lee and the company. In this case lee was a worker of the company under