Company Law Notes

COMPANY LAW – EXAM NOTES Incorporation and Its Effects S117 - All companies must register with ASIC S118 – All companies must have a Number S119 – Once the company is registered with ASIC, the company has a separate legal existence. Separate Legal Entity The separate legal entity notion is shown in Salomon v Salomon where a company shareholder is limited to the amount of share capital they have contributed and they can not be held personally liable for the dealings of the company. This notion of separate legal entity is shown in several cases: Lee v Lee’s Air Farming – The company can enter into contracts with a shareholder as an employee and it is bound because the company is a separate legal entity, distinct from its owner. Macaura v Northern Assurance – Macaura had insured timber in his own name and didn’t transfer the insurance policy to the company, that was formed to mill and fell timber. When timber burned he couldn’t make an insurance claim because the company was a separate legal entity. Industrial Equity v Blackburn – A holding company treated a subsidiary’s profits as if it was its own and went to pay dividends out of those profits. Court held each separate company was a separate legal entity and therefore this approach was invalid. Piercing the Corporate Veil There is however the notion of piercing the corporate vale with holds the directors personally liable for the debts of the company. This only applies to the directors of the company and not the shareholders. Under S588G of the Corporations Act, directors of a company are personally liable for any insolvent trading that the corporation has entered into. This liability arises where directors fail to prevent the company incurring debts when there are reasonable grounds to suspect the company was insolvent. This is shown in a number of landmark cases. Friedrich (Which shows that directors become personally liable for debts incurred during insolvent trading), Morley, Brosnan (States that the director