Consequences of Incorporation
CONSEQUENCES OF INCORPORATION
1. What is meant by separate legal entity & the corporate veil?
2. When will the corporate veil be lifted (ie. shareholders held to BE the corporation)? a. Fraud b. Agency c. Groups d. Tort
How does a comp become separate legal entity? • Comp become SLE on date of certificate of registration and approval with ASIC: s119 CA • Effect: become SLE or “legal person” with legal capacity/powers of corporation: s124
Corporate Veil & Separate Legal Entity
Once comp reg under CA( figurative ‘veil’ or ‘screen’ surrounds corporation.
Rights /liabilities of corp NOT rights/liabilities of members/directors/officers of corp.
THUS: comp (Incorp) is different/separate legal
Salomon v Salomon & Co
• FACTS: Comp – 20K shares + 10K debentures (loan) owned by Mr S (secured cred). 6 other shareholders – Mrs S and 5 children. Financial trouble – loan from Mr B (5K). Liquidated – Mr B paid back. 1K left. • ISSUE: not enough money to pay all sec (Mr S)/unsec creditors (still owed 77K pds). o Comp is essentially “one person” – so it is still a SLE? • LOWER CT (agreed with liquidator): ◦ Comp just nominee/agent/trustee for Mr S ◦ Fraud – comp paid too much money for Mr S’s business ◦ Comp formed for illegitimate purpose (comp is empty shell – just his own business really). • HOL: SLE – thus, S (sec cred) had right to claim before other creds. ◦ Approach: have leg prov of incorporation been satisfied? ◦ If so – is there fraud or agency (eg. Set up comp when business failing to escape liability)? ◦ If not ( incorporation (SLE) can’t be challenged. ◦ ‘the company at law is a different person altogether from the subscribers to the memorandum….nor are the subscribers as members liable in any shape or form, except to the extent and in the manner provided by the Act’
Lee v Lee’s Air Farming Pty Ltd
• FACT: weed spraying plane company. Mr L
1. What is meant by separate legal entity & the corporate veil?
2. When will the corporate veil be lifted (ie. shareholders held to BE the corporation)? a. Fraud b. Agency c. Groups d. Tort
How does a comp become separate legal entity? • Comp become SLE on date of certificate of registration and approval with ASIC: s119 CA • Effect: become SLE or “legal person” with legal capacity/powers of corporation: s124
Corporate Veil & Separate Legal Entity
Once comp reg under CA( figurative ‘veil’ or ‘screen’ surrounds corporation.
Rights /liabilities of corp NOT rights/liabilities of members/directors/officers of corp.
THUS: comp (Incorp) is different/separate legal
Salomon v Salomon & Co
• FACTS: Comp – 20K shares + 10K debentures (loan) owned by Mr S (secured cred). 6 other shareholders – Mrs S and 5 children. Financial trouble – loan from Mr B (5K). Liquidated – Mr B paid back. 1K left. • ISSUE: not enough money to pay all sec (Mr S)/unsec creditors (still owed 77K pds). o Comp is essentially “one person” – so it is still a SLE? • LOWER CT (agreed with liquidator): ◦ Comp just nominee/agent/trustee for Mr S ◦ Fraud – comp paid too much money for Mr S’s business ◦ Comp formed for illegitimate purpose (comp is empty shell – just his own business really). • HOL: SLE – thus, S (sec cred) had right to claim before other creds. ◦ Approach: have leg prov of incorporation been satisfied? ◦ If so – is there fraud or agency (eg. Set up comp when business failing to escape liability)? ◦ If not ( incorporation (SLE) can’t be challenged. ◦ ‘the company at law is a different person altogether from the subscribers to the memorandum….nor are the subscribers as members liable in any shape or form, except to the extent and in the manner provided by the Act’
Lee v Lee’s Air Farming Pty Ltd
• FACT: weed spraying plane company. Mr L