BTF5955 · Business and Company Law
Companies: Incorporation & Business Structures
Topic 7 opens the company-law half of the unit: choosing between the main business structures (sole trader, partnership, trust and company), incorporating and registering a company, and the foundational doctrine that a registered company is a separate legal entity distinct from its members (Salomon v Salomon & Co; Corporations Act 2001 (Cth) s 124). It also covers when a court will lift the corporate veil. These are examinable in the open-book final as IRAC and 'advise on the best structure' problems.
What this chapter covers
- 01Business structures compared: sole trader, partnership, trust and company — on liability, taxation, control, continuity and cost/complexity
- 02Sole trader (no separate entity, unlimited liability) and partnership (State Partnership Acts; partners jointly and severally liable; agency between partners)
- 03Types of company: proprietary (Pty) vs public; limited by shares/guarantee, unlimited, no liability (NL)
- 04Separate legal entity — Salomon v Salomon & Co Ltd [1897] AC 22; the company is a legal person distinct from its members
- 05Consequences: limited liability, perpetual succession, the company owns its property and may sue/be sued; legal capacity and powers — Corporations Act s 124
- 06Incorporation and registration; the constitution and replaceable rules; the statutory contract — s 140
- 07Regulator ASIC (corporate regulator) and ASX (securities exchange for listed public companies)
- 08Lifting/piercing the corporate veil: fraud/sham/facade, agency/alter ego, and statutory exceptions (e.g. insolvent trading s 588G)
IRAC on separate legal entity and veil-lifting: assets moved into a shell company
- +1Issue. Will a court disregard the separate legal personality of Owen Holdings Pty Ltd (lift the corporate veil) so that the supplier can reach the assets Owen transferred into it?
- +2Rule. On registration a company is a separate legal entity distinct from its members (Salomon v Salomon & Co Ltd [1897] AC 22; Corporations Act 2001 (Cth) s 124), so its assets are its own and its members are not generally liable for its debts. But a court may lift the corporate veil in limited circumstances — notably where the company is used as a mere facade or sham to conceal the true facts or to evade an existing legal obligation, or under specific statutory provisions.
- +2Application — the general rule and its exception. As a starting point, Owen Holdings is a separate legal person, so its assets are not automatically available to the sole trader's creditor. However, the facts show the company was created specifically to defeat an existing debt — assets were transferred for no real consideration to put them beyond the supplier's reach while Owen kept trading. That is the classic facade/sham scenario in which a court may look behind the corporate form.
- +1Application — evasion of obligation; Conclusion. Because the company was used to evade a pre-existing liability rather than for genuine commercial purposes, a court is likely to treat the incorporation as a device and lift the veil (and other doctrines, such as setting aside the asset transfer, may also assist the supplier). Conclusion: although Salomon protects genuine incorporations, a court may well lift the veil here because the company was a sham to defeat an existing creditor, allowing the supplier to reach the transferred assets.
Key terms
- Separate legal entity (Salomon)
- On registration a company becomes a legal person distinct from its members and directors (Salomon v Salomon & Co Ltd; Corporations Act 2001 (Cth) s 124). It owns its own property, contracts in its own name, and can sue and be sued; its members are not generally liable for its debts.
- Limited liability
- A consequence of separate legal personality in a company limited by shares: members are liable only for any amount unpaid on their shares, not for the company's debts generally. It is a key reason businesses incorporate.
- Lifting/piercing the corporate veil
- A court's exceptional disregard of a company's separate legal personality — for example where the company is a mere facade or sham, an agent/alter ego, or where a statute so provides (such as insolvent-trading liability under s 588G exposing directors).
- Proprietary vs public company
- A proprietary (Pty) company is limited in membership and cannot raise funds from the public; a public company may list on the ASX and raise public capital. They differ in fundraising, disclosure and governance obligations under the Corporations Act.
- Partnership
- A relationship between persons carrying on a business in common with a view to profit, governed by State Partnership Acts and the partnership agreement. Partners are generally jointly and severally liable and act as agents of one another; a general partnership is not a separate legal entity.
- Corporations Act 2001 (Cth) s 124
- The provision giving a company the legal capacity and powers of an individual plus the powers of a body corporate (for example, to issue shares and grant security). It underpins the company's ability to act in its own name as a separate legal entity.
Companies: Incorporation & Business Structures FAQ
What does it mean that a company is a separate legal entity?
It means that once registered, a company is a legal person in its own right, distinct from the people who own or run it (Salomon v Salomon & Co; Corporations Act s 124). The company — not its members — owns the business's assets, owes its debts, makes its contracts and sues or is sued in its own name. The practical payoff is limited liability: in a company limited by shares, members risk only any unpaid amount on their shares, not their personal wealth.
When will a court lift the corporate veil?
Only in limited circumstances, because separate legal personality is the rule. Recognised situations include where the company is used as a mere facade or sham to conceal the true facts or to evade an existing legal obligation, where it operates as the agent or alter ego of another, and where a statute specifically imposes liability (for example, directors' liability for insolvent trading under s 588G). Genuine use of limited liability, even to reduce risk, is not by itself a reason to lift the veil.
How do I choose between a sole trader, partnership, trust and company?
Compare them on the factors the unit emphasises: liability (a sole trader and general-partnership partners have unlimited personal liability, while a company offers limited liability), taxation, control and decision-making, continuity (a company has perpetual succession; a partnership may dissolve on a partner leaving), and the cost and complexity of formation and ongoing compliance. In an 'advise on structure' problem, weigh these against the client's circumstances rather than declaring one structure best in the abstract.
Can Sia help me with company-incorporation problems?
Yes, as a study aid. Sia can walk you through the separate-legal-entity doctrine and veil-lifting on fresh facts, compare the business structures on liability and continuity, and check whether your IRAC answer started from Salomon before reaching any exception. It explains the method and checks your reasoning; it does not do your graded assessment, and Monash academic-integrity rules apply.
Exam move
Topic 7 is the gateway to company law, so lock in two things. First, the separate-legal-entity doctrine: memorise Salomon v Salomon and s 124, and be able to list the consequences (limited liability, perpetual succession, the company owning its own property and suing in its own name). Second, veil-lifting as a narrow exception — always start a problem from the separate-entity rule and only lift the veil for fraud, sham/facade, evasion of an existing obligation, agency, or a statutory provision. Build a comparison table of the business structures (sole trader, partnership, trust, company) across liability, tax, control and continuity so you can answer an 'advise on structure' question quickly, and keep the regulators straight (ASIC for companies, ASX for listed entities). Practise on fresh scenarios by writing visible IRAC answers. When a step won't click, ask Sia to explain it a different way and to set you a fresh company-structure or veil-lifting problem; it teaches the method and checks your reasoning, and it never substitutes for your own graded work.
Working through Companies: Incorporation & Business Structures in BTF5955? Sia is AskSia’s AI Business Law tutor — ask any BTF5955 Companies: Incorporation & Business Structures question and get a clear, step-by-step explanation grounded in how BTF5955 is taught and assessed. Read this chapter free, then take your hardest questions to Sia.
