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HI6027 Business And Corporate Law 5

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Q 1.

Differentiate between a sole trader, company and a partnership. Support your answer to this by citing the advantages and disadvantages of using each business structure.

Q 2.

Provide a case summary of the case “Salomon v Salomon & Co Ltd [1897]” using the IRAC method.

What was the significance of this case law in relation to the legal concept of separate legal entity?

Q 3.

When can the corporate veil be lifted under the Corporations Act to make directors liable for corporate debts?

Q 4.

Provide a case summary of the case “Lee v Lee’s Air Farming Ltd [1960] UKPC 33” using the IRAC method. What legal principle came out of this case in relation to why the court lifted the corporate veil in this case?




A sole trader is considered as an individual or any entity who practices a business alone. It is measured as the easiest method of occupation and the inexpensive procedure of the commerce where other than the sole trader no other person or entity shall be obligated for the profits incurred and the losses in the business. A Company is mentioned  as any body or organization that is devouring a separate individuality separately from the proprietors of the corporation and they are the procedure of the occupation that is maintained privately by the proprietors. It is operated by two or more individuals jointly either in a limited way or as a full time basis.

The benefits of the sole owner is that it is easy to control the business as there is no liability and all the profits are individually gained. The benefit of the company is that it is considered as a distinct and separate entity other than the business proprietors. Whereas, partnership firm is relaxed to govern and the liabilities are shared between the partners.

However the drawback of sole owner is that it is uncertain in command to protect the monetary issues as it depends upon a single person. A company may be expensive and problematic to uphold if the business. In a partnership firm the difficulty is in regards to the dissolving as the company might dissolve with the consent of any of the partners.




The main matter that rose in respects to the element that even though the company is stated to be a separate being but still should the shareholders be liable for the debt of the company.


The key regulation was considered as the doctrine of the corporate veil that was laid down stating the company as a separate and a distinct legislative entity different from that of the other proprietors and the shareholders of the corporate house.


This legislation is noteworthy throughout the corporation law as through this instance the standard and the code as per laid down as the corporate character is recognized. It brands the corporation a distinct lawful entity  that defends its shareholders to not have any kinds of obligation in circumstances of damage. In overall, footings it is specified that by the submission of the code or the principle a business converts to  “separate legal entity. So in circumstance where the business fits beneath the damage that the  stockholders or the other proprietor shall not be capable to litigate the stockholders for the corporation for the damage in command to the payment of the debts.


In conclusion, the standard or the principle of the “separate corporate personality” were enacted and introduced through this case. It positions that the business to be a dissimilar lawful unit that in chance defend the stockholder  commencing from the expense of the debts and the unresolved in circumstances of damage or once the additional creditors or the stockholders want to experience their misplaced quantity from the company’ stockholder for the loss that is suffered.


The principle of the Corporate veil is specified as the imprint of unraveling a corporate unit from that activities to concern to the stockholders of the corporation. It defenses the stockholders of the corporations from the act complete by the corporation. “The Corporation Act” does not clearly define the circumstances where the “corporate veil” will be elevated. The situations and the circumstances upon which the veil could be elevated is once the there is a rupture of the responsibility by the director  or the substance is associated to definite commercial criminality or liquidation. The common grounds when the law court elevates the “corporate veil” is when the associates of the business are pandered in deceitful performances. The purpose schedule it is to discover the actual benefits of the associates. In such circumstances, the associates could not use the Salomon code to discharge from the accountability. The Law Courts have not delivered a precise summary of when the veil will be elevated. Supplementary, this is not specifically stated in the Corporations Act 2001 (Cth). Usually, they can be divided into two shared groups where it may be conceivable. However it is renowned, further these two classes, managers may be held accountable. These comprise where there is a opening of the duties of the directors, in debt interchange, and business corruption. In a case where any corporation is structure for the sole determination to revenue the advantage of the veil it will be raised by the law court. In another case where the business is an intervention the parental corporation will be made accountable by the law court by elating the veil. The Law court possess the authority to lift the veil if the company is distressed is practice of the veil in instruction to avoid or gratifying the legalized accountabilities. For instance in a case where a business be indebted for the money but handover the possessions significantly to extra object in command to disregard the sum the law court has the authority to “lift the veil” in that instance.



The main matter that is prominent in the condition is that whether Catherine must be accountable in order to acquire the payment in the form of compensation from the demise of her spouse from the corporation that they possessed.


The chief legislature s that were functional in the subsequent circumstance was the principle of the “separate legal identity”  and the concept of the “corporate veil”.


According to the actualities of the situation where Catherine lost her spouse in the plane crash and sought reparation from the corporation that was owned by themselves by the solicitation of the doctrine of the company to be considered as a separate legal entity. The Court of appeal disallowed it by affirming the detail that the two workplaces were dissimilar from all other and cannot not be associated so the principal domestic association was not recognized. But in regards to the judgment of the privy council, Mrs. Lee was made qualified for the reparation upon the detail that the corporation was a discrete lawful object so upon the submission of the principle of the distinct corporate she may arrive into an agreement with her personal corporation bearing in mind the corporation as a distinct object. It was specified that though Mr Lee was the executive yet Mrs.  Lee will be accountable for the reparation upon the detail that the partner was occupied for the company and the corporation to be measured as the “separate legal object”. This laid case is notable as it starts that the industries may be answerable to wrongdoing since companies have a separate lawful appeal and have the capability to arrive into agreements.


In conclusion, it is specified that the code of the “separate legal personality” of the business was used and the law court raised the veil as there was the commission of  a misbehavior as the stockholder declined to wage the reimbursement to the widow that will be measured as a illegal demeanor.



Farrar, John. Corporate governance: theories, principles and practice. Oxford University Press, 2008.

Jager, M. O., et al. Law and Practice of Company Accounting in Australia. Lexis Law Publishing (Va), 1987.

Jones, Paul, et al. "An exploration of the attitudes and strategic responses of sole-proprietor micro-enterprises in adopting information and communication technology." International Small Business Journal 32.3 (2014): 285-306.

Lee v Lee’s Air Farming Ltd [1960] UKPC 33

Salomon v A Salomon & Co Ltd [1896] UKHL 1

Tomasic, Roman, Stephen Bottomley, and Rob McQueen. Corporations law in Australia. Federation Press, 2002.

Warren, Marilyn. "Corporate Structures, the Veil and the Role of the Courts." Melb. UL Rev. 40 (2016): 657.

Whincop, Michael J. Corporate governance in government corporations. Routledge, 2017.

Yogaratnam, Jeswynn. Corporations law: in principle. Thompson Reuters, 2017.

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