Piercing the Corporate Veil

Introduction

An establishment of the separate legal status of ElectroSafe Fence Ltd (Fence Ltd) and BJD Manufacturing Ltd (BJDML) must first be established in regards to the question at hand. This issue is central as contractually, Bob granted BJDML (not Fence Ltd) an exclusive license to all patents relating to the manufacture of electrical fencing products. It was in exchange for this exclusive licensing that Bob was to receive the royalty payments. Thus the doctrine of a corporation’s separate legal existence will firstly be examined, followed with the applicability of the doctrine to the relationship between Fence Ltd and BJDML. Finally, in order to advise Bob fully on the status of his royalty payments, a necessary examination into the facts of who actually formed Fence Ltd and who is in control of the entity must be conducted.

Separate Legal Existence

It is an established legal principle of corporate law that companies are a separate legal entity from their owners and controllers. The case of Salomon v Salomon & Co Ltd set the foundational legal precedent that the incorporation of a company creates a legal entity distinct from its members. Given that BJDML and Fence Ltd are both validly incorporated under the Corporations Act 2001 (Cth), it stands to reason that both are separate legal entities. With reference to the degree of control exerted over Fence Ltd by BJDML, we find that the separate legal status of a company is in no way implicated by the fact that it is controlled by a legal person or entity. Therefore, even if Fence Ltd were to be owned by BJDML under the scope of the law, it would not affect the distinct legal status of the two entities. This issue of control will be examined further throughout the paper.

In addition, the ruling in Salomon prevents the denial of the existence of two separate legal entities on the basis of an agency. The presiding counsel in Salomon v Salomon & Co Ltd [1897] AC 22 Lord Halsbury LC concluded that...