Lipton, Herzberg & Welsh, Understanding Company Law Chapter 2



Salomon’s case & its implications

      A company comes into existence as a body corporate on the day that it is registered by ASIC: s 119. Commencing on the date of its registration a company is regarded as a legal entity that is separate and distinct from its shareholders and directors.

The implications of the separate personality of a company was recognised in Salomon v Salomon & Co Ltd [1897] AC 22. Salomon’s case is discussed in Lipton, Herzberg & Welsh, Understanding Company Law [2.50] .

P Lipton “The Mythology of Salomon’s Case and the Law Dealing with Corporate Groups: an Historical Perspective“.

J Farrar “Frankenstein Incorporated or Fools’ Parliament? Revisiting the Concept of Corporation in Corporate Governance” (1998) 10 Bond Law Review 142.

J Armour, H Hansmann & R Kraakman, ‘The Essential Elements of Corporate Law“.

M Blair, ‘The Four Functions of Corporate Personhood“.

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Lifting the veil

S Bainbridge, “Abolishing Veil Piercing’”[2001] 26 Journal of Corporation Law 479

I Ramsay & D Noakes, “Piercing the Corporate Veil in Australia


Limited liability

Limited liability is a feature of the companies legislation of virtually all countries in the world. The reasons for limited liability and its impact on the creditors of a company is discussed in Lipton,  Herzberg & Welsh, Understanding Company Law [2.20].

H Hansmann and R Kraakman, ‘The Essential Elements of Organisational Law

J. Sheahan, Special Counsel Assisting the Special Commission of Inquiry into the Medical Research and Compensation Foundation (James Hardie Inquiry) wrote an issues paper on the applicability of limited liability in relation to tort liability in corporate groups “The Concept of Limited Liability – Existing Law and Rationale“. Annexure T of the Report of the Inquiry NSW cabinet.

Creditors take a risk when dealing with limited liability companies. The steps creditors should take to reduce their risk are set out in the Information Sheet “Dealing with Businesses and Companies” from ASIC’s website.

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Asset partitioning

H Hansmann and R Kraakman, “The Essential Role of Organizational Law” (2000) 110 Yale Law Journal argue that the main purpose of incorporation is to partition assets so that the company is shielded from the insolvency of its shareholders.

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Companies as a lock-in device

M Blair, “Locking in Capital: What Corporate Law Achieved for Business Organizers in the Nineteenth Century” (2003) 51 UCLA Law Review 387 argues that the reason why companies became popular was due to the fact that company law locked in shareholder investment.

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Corporate groups

The principle in Salomon’s case has important implications for the regulation of corporate groups. This is discussed in Lipton, Herzberg & Welsh, Understanding Company Law [2.80]-[2.105].

D Murphy, “Holding Company Liability for Debts of its Subsidiaries: Corporate Governance Implications (1998) 10 Bond Law Review 241.

CASAC Corporate Groups Final Report.

Helen Anderson, ‘Piercing the veil on corporate groups in Australia: The case for reform’ (2009) 33 Melb Uni Law Rev 333

J Harris, “Lifting the Corporate Veil on the Basis of an Implied Agency: a Re-evaluation of Smith, Stone and Knight” (2005) 23 Company & Securities Law Journal 7

I Ramsay and G Stapledon, “Corporate Groups in Australia

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Running a company

          ASIC advice “

Running a Company


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