Chapter 2 — Separate Teaching Answers
Use this page after attempting the questions yourself. The explanations identify the controlling issue, the rule or authority that should have been recognised, and why the reasoning succeeds or fails.
FAQ teaching answers
FAQ 1 - Why does Corporate Law separate ownership and control?
It allows investors to supply capital while directors and managers specialise in running the enterprise. The trade-off is an agency problem: managers may not always have the same incentives as investors.
FAQ 2 - What is the company's "birthday"?
The beginning of the day of registration under s 119, when the company comes into existence as a body corporate.
FAQ 3 - Can one person own and direct the whole company?
Yes. Section 114 allows at least one member, and a proprietary company can have one director subject to s 201A. Separate personality still applies.
FAQ 4 - What does "in what capacity?" mean?
Identify whether the person was acting as member, director, officer, employee, creditor or another role. The applicable powers and duties depend on that capacity.
FAQ 5 - Are shareholders the owners of company assets?
No. The company owns its property. Macaura is the classic illustration.
FAQ 6 - Does a company have limited liability?
The company is responsible for its debts. Limited liability ordinarily describes the member's capped contribution merely as member.
FAQ 7 - Why is Salomon more than a case name?
Because it shows that a properly registered company remains separate even when one person overwhelmingly owns and controls it, and that the controller can have a separate creditor relationship with the company.
FAQ 8 - Why is Lee important after Salomon?
It shows the capacity principle in practice: the controller could also be an employee.
FAQ 9 - Why is Macaura important?
It shows the cost of separation: shareholders do not directly own corporate property.
FAQ 10 - When can the corporate veil be ignored?
Only on a recognised legal basis. Do not use "veil piercing" as a general fairness doctrine. Gilford Motor and Jones v Lipman illustrate relief where a company was used to evade an existing obligation.
FAQ 11 - Does parent-company control make the parent liable?
No, not by itself. Briggs is important precisely because control is normal in corporate groups.
FAQ 12 - Why do groups use subsidiaries?
To organise different businesses, jurisdictions, assets, financing and risks. The legal benefit of separation creates the creditor-policy problem discussed in Briggs and Qintex.
FAQ 13 - Are directors protected by limited liability if they breach duties?
Separate personality does not excuse personal wrongdoing. Directors can be personally liable on independent statutory, contractual, tortious or equitable grounds.
FAQ 14 - Why distinguish proprietary and public companies?
The classification affects fundraising, reporting, director requirements, governance and disclosure.
FAQ 15 - Do I need to memorise every company type?
Know the main forms and attach each to its legal consequence. Understanding beats isolated memorisation.
MCQ answers and reasons
A. Directors own the company assets.
B. Registration creates a legal person distinct from members and directors.
C. A company is only a contract among shareholders.
D. The company and its controlling shareholder are always one person.
A. It identifies which legal role, powers and duties attach to the conduct.
B. It tells you the person's tax bracket.
C. It determines whether the company is listed.
D. It makes Salomon irrelevant.
A. Macaura
B. Lee v Lee's Air Farming
C. Briggs
D. Qintex
A. Gilford Motor
B. Salomon only
C. Macaura
D. Canny Gabriel
A. The shareholder must pay the whole $4m.
B. The company owes the debt; the member's contribution is ordinarily limited under s 516.
C. The directors automatically owe the $4m.
D. The corporate veil disappears on insolvency.
A. Gilford Motor Co Ltd v Horne
B. Lee
C. Macaura
D. Canny Gabriel
A. Courts ignore companies whenever justice requires.
B. Control alone is enough.
C. A recognised legal basis must be identified; the metaphor should not replace analysis.
D. It only applies to public companies.
A. It says every corporate group is one legal person.
B. It rejects parent control alone as a sufficient basis to disregard subsidiary personality.
C. It abolishes limited liability.
D. It concerns partnership authority.
A. how commercial group practice can blur the identity of the contracting company
B. how a partnership forms
C. the tax rate on dividends
D. how ASIC appoints directors
A. a not-for-profit organisation without share capital
B. a listed mining company
C. an ordinary partnership
D. a sole trader
A. 5
B. 20
C. 50
D. 1000
A. only s 119
B. s 45A together with Corporations Regulations reg 1.0.02B
C. s 516 only
D. Partnership Act s 5
Full constructed IRAC model answer
2.26 Full Constructed IRAC Model Answer - Stella Designs and the Non-Compete
Issue
The principal issue is whether Louise Vuilton (LV) can obtain injunctive relief preventing Stella Designs Pty Ltd from supplying shoe designs to Christina Diorra during the six-month period in which Stella personally agreed not to design shoes for an LV competitor. The corporate-law sub-issue is whether Stella may rely on the separate legal personality of Stella Designs to do indirectly through the company what she has already agreed not to do personally. A preliminary assumption is that the restraint itself is otherwise valid and enforceable under the applicable restraint-of-trade law.
Rule / Law
The starting point is the separate legal entity principle. Under s 119 Corporations Act 2001 (Cth), Stella Designs came into existence as a body corporate on registration. Under s 124, it has its own legal capacity. Salomon establishes that a company remains legally distinct from its shareholders and controllers even where ownership and control are concentrated. Accordingly, Stella Designs is not automatically bound by every contract Stella has made merely because Stella controls it.
However, equitable relief can extend to a company used as the vehicle for evading an existing obligation. In Gilford Motor Co Ltd v Horne [1933] Ch 935, a former employee subject to a restraint used a company to carry on the prohibited competing activity. The court granted injunctive relief against both the individual and company. Jones v Lipman [1962] 1 WLR 832 similarly demonstrates that a company cannot necessarily be interposed as a device to defeat an existing contractual obligation.
The correct reasoning is narrower than saying the company and Stella are generally "the same person". The company remains separately incorporated. The question is whether equity should restrain the company because it is being used to facilitate the continuing breach of Stella's pre-existing obligation.
Application
Stella has a legitimate starting argument. Her employment contract was with her personally. Stella Designs was incorporated later and did not sign the restraint. Under Salomon, the fact that Stella and Evan are the only shareholders and directors does not by itself collapse the company's separate personality.
However, the factual sequence strongly favours LV. Stella was already bound for six months not to design shoes for an LV competitor. She left LV after a dispute over remuneration, retained copies of recent LV designs, then incorporated Stella Designs. Within weeks, Stella caused Stella Designs to enter an arrangement to provide shoe designs to Christina Diorra, an LV competitor, during the exact restraint period.
Those facts closely parallel the concern in Gilford Motor. The company appears not merely to be an unrelated enterprise in the same market, but a legal vehicle through which Stella intends to perform the very competitive design activity she personally agreed not to undertake. The timing, Stella's control, the identity of the competitor and Stella's possession of recent LV designs reinforce that inference.
That counterargument is important but does not fully answer LV's narrower case. LV need not prove that Stella Designs is identical to Stella for every purpose. It can seek equitable relief directed to stopping use of the company as the channel for the continuing breach of the restraint.
The media report that Stella may provide LV's actual designs to CD adds urgency, but it is only a rumour unless supported by admissible evidence. LV would need proper evidence if it relies on threatened misuse of designs or confidential information. Nevertheless, the risk of unreleased designs being supplied may support the argument that damages would be inadequate and that preventative relief is appropriate.
Remedy / Consequence
LV should seek an injunction restraining Stella from breaching the valid restraint and ask that the order also restrain Stella Designs from being used to carry out the prohibited activity. If relief is sought before final trial, LV must also satisfy the requirements governing interlocutory injunctions. The order should be framed around the prohibited conduct rather than making an unnecessarily broad declaration that Stella and the company are one legal person for all purposes.
Strong Conclusion
Assuming the six-month restraint is legally valid and enforceable, LV has a strong argument for injunctive relief against Stella and Stella Designs. Separate personality under s 119 and Salomon remains the starting rule, so Stella's control alone is insufficient. But the immediate incorporation of Stella Designs, the company's proposed supply of shoe designs to LV's direct competitor during the restraint period and Stella's possession of LV's recent designs make Gilford Motor a close analogy. The stronger conclusion is that Stella should not be permitted to use the company as the vehicle for evading the existing restraint.
Exam lesson
Do not jump straight to "piercing the veil." Write the reasoning in order: separate personality -> identify the pre-existing obligation -> identify the company's role in the alleged evasion -> apply Gilford Motor -> address the Salomon counterargument -> identify the precise equitable remedy.