TLAW 202 Corporations Law: Company Incorporation and Legalities

This assignment provides a comprehensive analysis of corporations law, focusing on company incorporation, registration, and the legal implications of separate legal entities. It examines the advantages and disadvantages of incorporating a corporation versus operating as a sole trader or partnership, highlighting the concept of limited liability and tax benefits. The assignment further delves into the doctrine of separate legal identity established in Salomon v Salomon and explores the exceptions to this rule, particularly the piercing of the corporate veil in cases of negligence or evasion of liability. The analysis includes case law examples such as Barrow v CSR Ltd and Briggs v James Hardie, illustrating the circumstances under which a parent company can be held liable for the actions of its subsidiary. The document is available on Desklib, a platform offering a range of study tools and resources for students.

BLOCK 2 TRIMESTER 1 2018: TLAW 202 – CORPORATIONS LAW – ASSIGNMENT
QUESTIONS

Question 1
Answer: On account of the facts that have been given in this question, it is clear that some
advantages will be accessible to Richard and his sons in case they go ahead and incorporate a
corporation for the purpose of increasing their present trade activities. The reason is that it is
easier for a company to develop business as compared to sole trader business or partnership
business. It is true that the cost of registration of a corporation is higher in contrast with
managing the trade as a sole trader or as a partnership. But it needs to be noted that in the long
run, because that has been incurred on the registration of the company can be treated as running
business expenses. On the other hand, when the parties have decided to only register the business
name, it can be less expensive as compared to registering a company. But if the parties have
registered the company, there is no need for registering the business name. When a corporation
has been incorporated, the full name of the company begins with "Pty Ltd" has to be used. At the
same time, it is also necessary to regularly renew the registration of the business name. For this
purpose, a fee also needs to be paid to the administration. On the other hand, when the parties
have registered a company for running their business, the ASIC has to be paid an annual fee.
The major advantage related with the incorporation of a corporation is that the members of the
company have limited liability towards the debts of the corporation. Consequently, it has been
provided that after the registration of the corporation, its members are only liable to any sum
unpaid on the shares of the company held by them. But this advantage is not available to the
persons running their business as sole traders and partners (Sweeney, O’Reilly and Coleman,
2013). The reason is that these persons are treated by the law as being personally responsible for

all business responsibilities. Some other relatives are also available when the parties have
registered the company for running the business. For example, the rate of tax is lower in case of
companies. As a result, the persons who are running their business by registering a business
name have to pay income tax at the normal rate, but on the other hand, the registered
corporations in Australia have to pay a flat rate of tax. This rate is less as compared to the rate
applicable in case of individuals (Graw, 2011).
It also needs to be noted that in the eyes of law, a company is a separate legal entity. Due to this
legal fiction, the company has the authority to whom property under its own name. Similarly,
context can be created by the company in its own name. Therefore, it becomes clear that
according to law, a company is distinct from its members (Latimer, 2016). Before going through
the steps required for registering a company in Australia, it also needs to be determined if the
business structure of a company will suitable for the parties in the present case. At the same,
Richard and his sons have to decide the business sector will be most suitable for expanding their
business. For the purpose of making this decision, it is necessary that all the available options are
considered by the parties (Vermeesch and Lindgren, 2011). In the present case, a successful
business is being run by Richard. It is expected that his sons, David and Liam will also be joining
the business. Under the circumstances, they are willing to expand their business. In order to
achieve this objective, they have to select the business sector that will prove to be most suitable
for them. After considering the facts of this question, it is clear that the business structure that
allows them to raise finances easily, that are required for growing the business will be most
suitable for them.
Another issue also exists in this question. While Richard wants the corporation name to be
"Ridali", his sons want that the business should be named "Rich's Guaranteed Olives". It is worth

stating in this regard that there is a difference between registering a company and only
registering the name of the business. While deciding on the name of the business, the parties
should consider certain issues. As a result, the name that has been chosen by them, should not be
similar to any existing business name. Consequently, only the names that are not matching with
the name of any business or corporation can be used by the parties. Therefore, it is a
commendable that unnamed availability search needs to be conducted for the purpose of making
sure that the name of the business that has been chosen by the parties is available. At the same
time, it is also provided by the law that when the parties have an identical name, it is available to
the parties to register such name as the name of the business. However, certain words cannot be
used in the name of the business as it is believed that they may mislead the public regarding the
activities of the company. For example, the law does not allow the parties to use words showing
any relationship with government, ex-servicemen or royal family.
The liability of the members should also be revealed by the name of the company. As a result, if
the liability of the members is limited in case of the debts of the corporation, the name of the
company has to end with the words, "proprietary Ltd." similarly, when the members have
unlimited liability in this regard, it is provided that the name of the company is going to end with
the word "proprietary". However, if it is desired by the parties that a different name should be
exhibited, the law provides an alternative in this regard. Therefore the parties can register any
other name as the name of their business. Hence, in this case also, Rich's Guaranteed Olives can
also register "Ridali" as the business name. This name can be displayed by the company on all
signage.

Question 2
Answer: After considering the facts in this question, the issue appears if Terry and other staff of
the company can sue Cosmo Mine Ltd (CM). This issue arises on account of the fact that these
were the employees of Cosmo Mining Services Pty Ltd (CMS). In this context, it is worth
mentioning that Cosmo Mine Ltd is a subsidiary of CMS. resolution was passed by the
shareholders of CMS, which provided that a new corporation was going to be established. The
trade of CMS was to be sold to this new corporation. Under these circumstances CMS was going
to be wound up. In view of this situation, the question arises if the employees can take any action
against the parent company CM or from CMS, their employer.
The general rule of the corporations’ law provides that in the eyes of law, a company has its own
distinct identity. The role related with the distinct identity of a corporation has been firmly
established after the ruling given in Salomon v Salomon (1896). Here the court clearly stated that
a corporation has distinct identity. As a result of this rule, each corporation has a distinct identity
after it has been incorporated. Due to this doctrine, a corporation is allowed to enter contracts in
its own name, and similarly a company can also own property. At the same time, this rule also
provides that the obligations of the corporation (Terry and Giugni, Harcourt, 1994). Only the
obligations of the company and they are enforceable only is the company itself. In this regard, it
is worth mention that the company can sue and be sued under its own name. It is also provided
by the notion of limited liability of a corporation that the members of the corporation are not
personally liable regarding the obligations of the corporation (Cheffins, 1997). The effect of this
doctrine is that the obligations of the company are enforceable only against the company itself
and not against its members.

But it needs to be noticed that the above-mentioned rule is a general rule and an exception is
present regarding this general rule. This exception is called the piercing of the corporate veil. It
has been provided by the corporations’ law that there are some cases where the courts have been
allowed by the law to ignore the principle of separate identity and the courts may decide that the
corporate veil needs to be lifted (Khoury and Yamouni, 2010). This decision can be made by the
court in cases where the court wants to enforce liability on the persons controlling the company.
Such an obligation can also be imposed by the tort law, where it is provided that a negligence
cases, and relationship of proximity should exists between the parties.
A comparable obligation exists in the case of piercing the corporate veil. For example, in Barrow
v CSR Ltd (1988), the court had stated that a company can be held liable to employees for the
torts of its subsidiary company. As a result, if the negligence of the subsidiary company has
resulted in asbestosis among the employees of the company, it was stated by the court that in
such matters, it is not significant if the principle of agency law is used for describing the case or
if the proximity between employees of the two companies has been used or if the doctrine of
piercing the corporate veil has been relied upon, or the issue has been decided in context of the
control enjoyed by the patent company (Parker, 2002). It was the opinion of the court that in all
the above-mentioned cases, same final effect will be produced. In the same way, the court had
stated in Briggs v James Hardie (1989) that the issue is related with negligence. Therefore, the
court was required to deal with the issue of piercing the corporate veil and also the concept of
foreseeability.
On account of the decisions delivered in cases mentioned above, the current legal position
regarding the issue appears to be as follows. Therefore if the subsidiary does not have enough

funds to provide compensation to the other party, the other party is allowed by the law to claim
compensation from the corporation having ultimate control over the subsidiary company. As a
result of this position, it can be computed in this case also that a claim can be initiated by Terry
against the parent company, CM also. The shareholders of CMS had collectively decided to wind
up the corporation and sell its trade to the new corporation, Lazarus. But under the circumstances
it can be stated that this new corporation is being formed only with a view to evade the liability
of CMS towards its employees and also the residents of Gunbarrel Town. All these persons
suffered from cancer as due to the mining activities of the company in the area, the drinking
water in the area was contaminated. Now, sufficient resources are not available with the
subsidiary company to pay compensation. Conversely, the parent corporation has 120 shares out
of the total 200 shares of the subsidiary company. Another point worth mentioning is that CS
enjoys full control on the activities of the subsidiary CMS and the mining equipment was also
leased from CM.
in view of these circumstances, the conclusion can be made that along with its employer, Terry
can also sue the parent company, CS, as well as the newly incorporated Lazarus to seek
compensation. In this case, it is possible for the court to lift the corporate veil, and holds the
patent company CS liable for the actions of CMS over which it had complete control.

References
C Parker, 2002, The Open Corporation: Effective Self-regulation and Democracy, Cambridge,
Cambridge University Press
Cheffins, B.R., 1997, Company Law: Theory, Structure and Operation, Oxford, Clarendon Press
Latimer, P, 2016, Australian Business Law CC, Edition.
Stephen Graw, 2011, An Introduction to the Law of Contract, 7th Ed., Thomson Reuters.
Sweeney, O’Reilly & Coleman, 2013, Law in Commerce, 5th Ed., LexisNexis.
Khoury, D. and Yamouni, Y., 2010, Understanding Contract Law, 8th Edition, LexisNexis
Butterworths
Vermeesch,R B, Lindgren, K E, 2011, Business Law of Australia Butterworths, 12th Edition
Case Law
Barrow v CSR Ltd (1988) Unreported
Briggs v James Hardie& Co Pty Ltd (1989) 16 NSWLR 549
Salomon v A Salomon & Co Ltd [1896] UKHL 1