A Critical Examination of the Doctrine of Separate Legal Personality and Piercing/Lifting the Corporate Veil


From its inceptions in the late Middle Ages, the incorporation of business activities has remained an area of controversy both in legal scholarship and the political and social sciences. In the early days of the twentieth century, Ambrose Bierce wrote in his Devil’s Dictionary, that a corporation is ‘an ingenious device to obtain profit without individual responsibility.’[1] On many levels, this satirical statement captures the practical realities behind the concept of separate legal personality, limited liability and the veil of incorporation. This essay will examine these doctrines from both traditional theoretical perspectives and critical perspectives, with an emphasis upon the implications for these doctrines to the development of jurisprudence related to corporate groups.[2]

This essay will begin with an introduction to the doctrines of separate legal personality and limited liability, their basis in the general law[3] as well as those relevant sections of the Corporations Act 2001 (Cth) (‘CA’) which affirm them.[4] I will then turn to an examination of the doctrine of the corporate veil, from a traditional theoretical framework in concession[5] and contractarian theories,[6] including a discussion of some of the reasons behind the court’s reluctance to pierce or lift the corporate veil.[7] This will lead into a discussion of the several areas where the courts have decided to pierce or lift the corporate veil in the general law.[8]

Following on from this, I will turn to discuss several critical theories of the corporation – communitarian theories and CSR,[9] feminist critiques of the corporation[10] and Islamic jurisprudence and its relevance to international corporate activities.[11] Thus, I hope to shed light on the potential for recognising theoretical plurality in our understanding of corporate law jurisprudence in Australia.[12]

Separate Legal Personality and Limited Liability

Within corporate law, the doctrine of separate legal personality for artificial persons is fundamental and has been understood since the late Middle Ages,[13] although the present legal position has developed considerably since the late 19th century – both in terms of the general law position and statutorily. The case of Salomon v A Salomon & Co Ltd,[14] is seen as a landmark case in laying the foundation for our contemporary understanding of separate legal personality and its place within the broader corporate law framework. This case involved a company with a sole director, Salomon, who was also the primary shareholder (together with several members of his family who nominally held shares, primarily in satisfaction of the requirements of the Companies Act in force at the time). Ultimately, on appeal to the House of Lords, their Lordships held that the only requirements for a company to become a legitimately registered corporation (with the benefits of incorporation and registration) was compliance with the statutory requirements.

This case is important, as the earlier decisions arrived at by Justice Vaughn at first instance – and  affirmed by the Court of Appeal[15] – accepted arguments similar to those which I will explore below regarding those questions of fact in which the courts may consider piercing the corporate veil. The judges had concluded that Salomon had registered his business as a corporation merely as a façade or sham in order to avoid personal liability, or in the alternative, for the company to act as an agent on his behalf. Overturning the earlier judgments of the Court of Appeal, the House of Lords saw the primary issue as a matter of statutory interpretation, not wanting to create any further requirements for a company to be legitimately registered and created than were stipulated by the Legislature.

The principle established in Salomon[16] was applied in Lee v Lee’s Air Farming Ltd,[17] in which a sole director of a company was held to act in his capacity as an employee of the company, separate and distinct from the legal entity of the company. Similarly, a sole director was held to not be the owner of his company’s assets in Macaura v Northern Assurance Co Ltd.[18] More recently, this same principle of separate legal personality has been held to be applicable to separate companies within an associated corporate group,[19] but this is an area where the law can be still be unsettled,[20] and further down, will become an important element of discussion in this paper.

This principle has been confirmed in the Corporations Act 2001 (Cth),[21] by which a registered company has the legal capacities and powers of a natural person, as well as those of a body corporate. Also, in relation to corporate groups, the Corporations Act includes provisions for the definition of related companies, such as holding/parent companies and subsidiaries.[22] Separate legal personality forms the basis for the application of the doctrine of the corporate veil, and those exceptions where the courts may pierce or lift the corporate veil, in assigning personal liability for the actions of a company to its directors, officers or shareholders.[23]

Doctrine of the Corporate Veil

Thus, turning now to the doctrine of the corporate veil, it has been utilised as a metaphor for the protective covering of incorporation against liability of directors, officers or shareholders of a corporation, where instead of being able to directly sue those individuals, the company itself can be sued, with generally only the assets owned by the corporation being available for the satisfaction of remedies.[24] It has been criticised for being an unprincipled and arbitrary area of law, particularly in the discretion by courts to pierce or lift the corporate veil in assigning personal liability to individuals.[25]

When it comes to traditional theories of the corporation underpinning these doctrines, they can be grouped into three types: (1) concession theories, which understand the corporation to be an artificial creation of the State; (2) aggregate theories, which see the corporation as a legal shorthand for multiple contracts between its members; and (3) natural entity theory, which see the corporate form as a natural creation of economic activities of individuals being organised for competitive capability and business efficiency.[26]

The concession theory is the primary orthodox theory of corporate law, which hearkens back to the institution of chartered companies created by royal prerogative or Act of parliament, which turned into statutory registration of companies under the various Companies Acts, as the predecessor to our current Corporations Act 2001 (Cth). This theory has two important impacts on both the doctrine of separate legal personality and on the corporate veil: (1) These characteristics of the corporation are seen as granted by the State as a concession, upon condition that the corporation complies with the statutory requirements and regulation of the State; and (2) based upon the doctrines of separation of powers and parliamentary sovereignty, the courts are often reluctant to pierce the corporate veil unless there is clear indication that this was the intention of the legislature.[27]

Exceptions in General Law

The ‘corporate veil’ or ‘veil of incorporation’ is never expressly mentioned in the Corporations Act 2001 (Cth), nor is the terminology of ‘piercing’ or ‘lifting the corporate veil’. However, there are some aspects of the Corporations Act which relate to the arguments for petitioning the court to pierce the corporate veil in applying personal liability to directors, officers or shareholders for the actions, liabilities or transactions of the corporation as a separate legal personality. One primary example is the breach of director’s duties.[28] Otherwise, legal arguments in which remedies may require pleading under the general law for the corporate veil to be pierced can generally be grouped under four heads.[29]


Agency arguments have been employed in pleading the court’s discretion to lift the corporate veil in both cases of individual misconduct, as well as between holding companies and their subsidiaries. In Ampol Petroleum Pty Ltd v Findlay,[30] the defendant sought to pierce the veil of his own private company to show that the losses of the company were his own losses, thereby increasing the quantum of damages payable for the breach of a contract. The court was willing to accept this argument. In the case of WorkCover Authority of NSW v Baker-Duff Pty Ltd[31]and WorkCover Authority of NSW v Krcmar Engineering Pty Ltd,[32] companies successfully argued that their veil should be pierced to reveal a partnership, in one case, and in the other case, an individual, thereby reducing the applicable penalty to the company. In the first case, a shelf company was operating merely for the convenience of accounting, and in the second case, a one-man company had been incorporated only for convenience of accounting. Thus, these companies were held to be acting as agents for their incorporators, and the veil was pierced.

Implied agency arguments have been particularly relevant in cases related to holding companies and their subsidiaries. However, as seen in Hook v Day,[33]for example, courts are reluctant still to ‘pierce the corporate veil’ in holding that a subsidiary company was acting impliedly as an agent for the holding company.


Fraud arguments, and the related sham or façade arguments, have had a measure of success in prompting the court to lift the veil. For example, on appeal the decision of a judge at first instance was upheld, where a company was held to have been incorporated for the purpose of evading a legal obligation or perpetuating a fraud.[34] A similar argument was ran in the review of an immigration decision to refuse a visa, on the basis that the company sponsoring the application had been created the day before the visa application, evidently incorporated purely for the purpose of circumventing Australian migration law.[35]

Sham or Façade

Sham or façade arguments have been utilised in a similar way to the fraud argument.[36] However, in a similar fashion to Salomon v A Salomon & Co Ltd,[37] in which at first instance the court heard arguments that the company had been created illegitimately as a sham or façade in order to gain the benefits of incorporation for a sole trading business, in Peate v Federal Commissioner of Taxation,[38] Windeyer J warned of taking this argument too far, bringing it back to the standard that as long as the statutory requirements for legitimate registration are complied with, it is not the place of the court to add additional requirements or expectations. In that case, the company was held to be a legal reality and not a sham.

Group Enterprises

As discussed above, the presence of corporate groups in both Australian and international commercial activities have stressed the continued application of the principle of separate legal personality and the veil of incorporation in a simplistic and clear way as developed since Salomon. It is an unsettled area of law with a great deal of discussion and debate – both in the courts and in academia.[39]

In Walker v Wimbourne,[40] directors of a company within a group used assets from a company within the group which was in serious financial difficulty to guarantee loans for another company. In this case, the court held that the directors were not acting in the best interest of the company, were in breach of directors’ duties, and the veil was lifted in applying liability for the subsidiary upon the directors of the parent company. However, in the same year, Industrial Equity Ltd v Blackburn[41]held that consolidated accounts for companies within a group were not a justification alone for lifting the veil between the separate corporate personalities within the group.More recently in Pioneer Concrete Services v Yelnah Pty Ltd,[42] the court refused to hold the binding promise in a contract entered into by a subsidiary as binding upon the parent company. Thus, in general terms, the courts show greater reluctance to pierce the corporate veil between companies within corporate groups than within a company in order to allocate individual liability to a director, officer or shareholder.

Underlying Principle behind Piercing/Lifting the Veil

Overall, it can be concluded that although there are instances in which the courts have been willing to lift or pierce the corporate veil, there is always – based upon the underlying orthodox theories in the doctrine of separate legal personality and the veil of incorporation – a reluctance by the courts to go behind a legitimately registered company, based upon the separation of powers and the doctrine of parliamentary sovereignty.

Critical Theories – Communitarian Theory, Feminist Critique and Islamic jurisprudence


Finally, having addressed the doctrines of separate legal personality and the veil of incorporation, together with those exceptions in which the court may be willing to lift or pierce the corporate veil, I will now turn to address some of the critiques of corporate law in communitarian theories, feminist critique and Islamic legal jurisprudence.

Communitarian Theory

After discussing more traditional concession and contractarian theories, Jeffrey Bone lays out a strong critique of these theories and argues in favour of communitarian theory, essentially arguing that in the same way as being a natural person in law holds both rights and liabilities/responsibilities/duties, there should be greater emphasis on the social duties and responsibilities of artificial persons within society.[43] This is something akin to both developing CSR (corporate social responsibility) perspectives as well as stakeholder theory, which shifts the emphasis in economic theory away from self-interest, competition and the interests of shareholders in profit-making and towards a greater concern for the impact on society, the economy and the environment that corporations have.[44] There is a greater capacity within communitarian perspectives to engage with gender issues[45] as well as issues of intersectionality (such as class difference and race).[46] Essentially, there is a contention that corporate theory should move away from neoliberal self-interest and individualism towards a more compassionate and socially concerned perspective.[47]

Feminist Critiques of Corporate Law

Corporate law has a particular impact upon women that has been critiqued by feminist legal scholars.[48] Spender[49] explains the different categories of women’s participation in corporate activities, which also as a flow-on, impacts on the differing impacts that the law can have on women. Those three levels of participation are:

  • Primary participation in small business, for which corporations law has little effect generally.
  • Secondary involvement, where women are regularly involved as passive recruited directors by their male partners who are managing directors.
  • Non-participation, where there is still a low participation rate by women in large corporate activities, which is the primary field affected by our current corporate law regime.[50]

The area of law that particularly impacts on women, as highlighted by Spender[51] and Cassidy[52] is the secondary involvement as a passive recruited director, in particular the way that liability can attach to female passive directors for insolvent trading, under s 588G Corporations Act 2001 (Cth). While there has been some protection for women’s interests more generally in equity, the allegedly objective standards of corporate law impact on women in a more negative way in this area of law.[53]

On a broader level, corporate law has been developed by and for men, as commercial activities are dominated by men and a masculine perspective which fostered individualism, self-interest and competition, whereas feminine values of relationality and interdependence have been suggested as undermining the applicability of the doctrine of separate legal personality.[54] Women who are involved in business are often more personally invested in it, and the concept of a separate entity acting as opposed to the women themselves is incongruent with how women function generally. There has been a strong call for reform of corporate law to incorporate a more feminist perspective and understanding of business and commercial activities, which generally aligns with the earlier communitarian and CSR perspectives discussed above.[55]

Islamic Jurisprudence

There has been some debate in academia as to whether Islamic jurisprudence includes a category for a corporation with separate legal personality and liability from individuals.[56] It appears traditionally, Islamic jurisprudence saw a ‘corporation’ as operating more like what Western legal understanding characterises as a ‘partnership’ (the Arabic word used for company being ‘sharikah’, which more accurately would translate as partnership) in which, rather than limited liability being applied, instead a shared unlimited liability between partners.[57] Some comparative study has been conducted in comparing the common law system’s understanding of corporate law versus the Islamic jurisprudence, as Islamic culture in business and international corporate activities is an important part of the global economy, and in particular for Australia, where Indonesia, Malaysia, amongst other nations are important trading partners in our region.[58] In critiquing our Western liberal framework of corporate law which has really only developed since the Industrial Revolution, it is worthwhile to look to older understandings of commercial activity and liability allocation in critiquing our legal system. The philosophy of Islam regarding commercial activity is similar to the communitarian perspective and CSR theories in giving higher regard to the protection and wealth of the entire society as opposed to the strong emphasis on individuality and competition that underpins our Western understanding of business activity.[59]


Thus, it can be concluded that, although the doctrine of separate legal personality and the veil of incorporation are fundamental doctrines in the Western, liberal, capitalist legal system, there are many different angles from which it can be theoretically critiqued. The application of these doctrines and the reluctance of courts to lay out a clear and principled approach to when the corporate veil should be pierced or lifted, while under the guise of deference to parliament and separation of powers, in accord with the understanding of legal realism, great latitude to protect the status quo based upon implied policy considerations. Communitarian and feminist theories problematize the genuine application of corporate legal principles in an objective way, in its unequal impacts upon women. Islamic jurisprudence exposes that the Western conception of how business activities should be organised is only relative to their cultural underpinnings, and as an important component of international commercial and business activities, some consideration should be given to other cultural understandings of how business should be organised and liability allocated.

[1] Ambrose Bierce, The Devil’s Dictionary (Doubleday, Page & Co, 1906), cited by Clive Turner, John Torne and Roger Gamble, Business Law for Managers (Thomson Reuters, 2017) 399.

[2] Damien Murphy, ‘Holding Company Liability for Debts of Its Subsidiaries: Corporate Governance Implications’ (1998) 10 Bond Law Review 241; Robert Baxt and Timothy Lane, ‘Developments in Relation to Corporate Groups and the Responsibilities of Directors – Some Insights and New Directions’ (1998) 16 Company and Securities Law Journal 628; Helen Anderson, ‘Piercing the veil on corporate groups in Australia: the case for reform’ (2009) 33(2) Melbourne University Law Review 333; Helen Anderson, ‘Veil Piercing and Corporate Groups – An Australian Perspective’ (2010) New Zealand Law Review 1; J Dickfos, ‘Enterprise Liability for Corporate Groups: A More Efficient Outcome for Creditors’ (2011) 25 Australian Journal of Corporate Law 242; Jason Harris and Anil Hargovan, ‘Cutting the Gordian knot of corporate law: Revisiting veil piercing in corporate groups’ (2011) 26 Australian Journal of Corporate Law 39; Alan K Koh, ‘(Non-)Enforcement of Directors’ Duties in Corporate Groups: Goh Chan Peng v Beyonics Technology Ltd’ (2018) 81(4) Modern Law Review 673.

[3] For example, Salomon v A Salomon & Co Ltd [1897] AC 22.

[4] CA, s 124(1).

[5] John Coates, ‘State Takeover Statutes and Corporate Theory: Revival of an Old Debate’ (1989) 64(4) New York University Law Review 806.

[6] Stephen Bottomley et al., Contemporary Australian Corporate Law (Cambridge University Press, 2017); Ian M Ramsay, ‘Corporate Theory and Corporate Law Reform in Australia’ (1994) 1(2) Agenda 179; Jason Harris, Company Law: Theories, Principles and Applications (LexisNexis, 2015); Robert P Austin and Ian M Ramsay, Ford, Austin and Ramsay’s Principles of Corporations (LexisNexis, 2017); Phillip Lipton, Abe Herzberg and Michelle Welsh, Understanding Company Law (Thomson Reuters, 2020).

[7] Oscar Shub, ‘Separate Corporate Personality: Piercing the Corporate Veil’ (2006) FDCC 253; Marilyn Warren, ‘Corporate Structures, the Veil and the Role of the Courts’ (2016) 40 Melbourne University Law Review 657.

[8] Ross Grantham, ‘The Corporate Veil: An Ingenious Device’ (2013) 32(2) University of Queensland Law Journal 311; Neil Foster, ‘Personal civil liability of company officers for company workplace torts’ (2008) 16 Torts Law Journal 20; Ian M Ramsay and David B Noakes, ‘Piercing the Corporate Veil in Australia’ (2001) 19 Company and Securities Law Journal 250.

[9] Jeffrey Bone, ‘Legal Perspective on Corporate Personality: Contractarian or Communitarian Thought’ (2011) 24(2) Canadian Journal of Law and Jurisprudence 277; Banu Ozkazanc-Pan, ‘CSR as Gendered Neocoloniality in the Global South’ (2019) 160 Journal of Business Ethics 851; Kate Grosser and Jeremy Moon, ‘CSR and Feminist Organization Studies: Towards an Integrated Theorization for the Analysis of Gender Issues’ (2019) 155 Journal of Business Ethics 321; Rogene A Buchholz and Sandra B Rosenthal, ‘Toward a Contemporary Conceptual Framework for Stakeholder Theory’ (2005) 58 Journal of Business Ethics 137; Allen Kaufman and Ernie Englander, ‘Behavioural Economics, Federalism, and the Triumph of Stakeholder Theory’ (2011) 102 Journal of Business Ethics 421.

[10] Kathleen A Lahey and Sarah W Salter, ‘Corporate Law in Legal Theory and Legal Scholarship: From Classicism to Feminism’ (1985) 23(4) Osgoode Hall Law Journal 543; Dianne Otto, ‘A Barren Future? Equity’s Conscience and Women’s Inequality’ (1992) 18 Melbourne University Law Review 808; Janine Pascoe, ‘Women and Company Law’ in Patricia Easteal (ed), Women and Law in Australia (LexisNexis, 2010) 49; Peta Spender, ‘Women and the Epistemology of Corporations Law’ (1995) 6 Legal Education Review 195; Silke Machold, Pervaiz K Ahmed and Stuart S Farquhar, ‘Corporate Governance and Ethics: A Feminist Perspective’ (2008) 81 Journal of Business Ethics 665; Ronnie Cohen, ‘Feminist Thought and Corporate Law: It’s Time to Find our Way Up From the Bottom(-Line)’ (1994) 2(1) Journal of Gender & the Law 1; Julie Cassidy, ‘“Sexually Transmitted Debts”: The Scope of Defences to Directors’ Liability for Insolvent Trading’ (2002) 20 Company and Securities Law Journal 372.

[11] Saheed Abdullahi Busari et al., ‘The Financial Distress of Corporate Personality: A Perspective from Fiqh’ (2019) 27(1) Intellectual Discourse 245; Raed El-Saadouni, ‘The Liability of Groups of Companies in Islamic Law (A Comparative Study with Common Law)’ (Thesis for PhD, University of Stirling, November 2013); Anowar Zahid, ‘Corporate Personality from an Islamic Perspective’ (2013) 27(2) Arab Law Quarterly 125. Cf. Michael Novak and John W Cooper (eds), The Corporation: A Theological Inquiry (American Enterprise Institute for Public Policy Research, 1981).

[12] Richard Schulte, ‘Future of Corporate Limited Liability in Australia’ (1994) 6 Bond Law Review 64; John H Farrar, ‘Doctrinal incoherence and complex variables in piercing the corporate veil cases’ (2014) 29 Australian Journal of Corporate Law 23.

[13] David Millon, ‘Theories of the Corporation’ (1990) Duke Law Journal 201; Rob McQueen, ‘Life without Salomon’ (1999) 27 Federal Law Review 181; Jeffrey Nesteruk, ‘Legal persons and moral worlds: Ethical choices within the corporate environment’ (1991) 29(1) American Business Law Journal 75.

[14] See n 3.

[15] Broderip v Salomon [1895] 2 Ch 323.

[16] See n 3.

[17] [1961] AC 12.

[18] [1925] AC 619.

[19] For example, Walker v Wimbourne (1976) 137 CLR 1 and Industrial Equity Ltd v Blackburn (1977) 137 CLR 567.

[20] Abe Herzberg (ed), ‘Current developments – Legal and administrative’ (1987) 5(4) Company and Securities Law Journal 199; Damien Murphy (n 2); Robert Baxt and Timothy Lane (n 2); Helen Anderson (2009 and 2010) (n 2); J Dickfos (n 2); Jason Harris and Anil Hargovan (n 2); Alan K Koh (n 2).

[21] CA, s 124(1).

[22] Ibid, ss 46-50.

[23] Marilyn Warren (n 7).

[24] Oscar Shub (n 7); Jason Harris (n 6); Robert P Austin and Ian M Ramsay (n 6); Phillip Lipton, Abe Herzberg and Michelle Welsh (n 6).

[25] Marilyn Warren (n 7); Stephen Bottomley et al. (n 6).

[26] John Coates (n 5) 809-810.

[27] Ibid, 812-814.

[28] For example, CA, ss 181-184.

[29] Ian M Ramsay and David B Noakes (n 8).

[30] (Unreported, VSC, Fullagar J, 30 Oct 1986).

[31] (Unreported, Industrial Relations Court of NSW, Fisher CJ, 2 Apr 1993).

[32] (Unreported, Industrial Relations Court of NSW, Fisher CJ, 18 May 1993).

[33] (1971) 2 SASR 440.

[34] Donnelly v Edelsten (1994) 13 ACSR 196.

[35] Re Neo (Unreported, Immigration Review Tribunal, Metledge M, 30 Jul 1997).

[36] Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449, 456 (Lockhart J).

[37] See n 3.

[38] (1964) 111 CLR 443, 480 (Windeyer J).

[39] Damien Murphy (n 2); Robert Baxt and Timothy Lane (n 2); Helen Anderson (2009 and 2010) (n 2); J Dickfos (n 2); Jason Harris and Anil Hargovan (n 2); Alan K Koh (n 2).

[40] See n 19.

[41] Ibid.

[42] (1986) 5 NSWLR 254, 264.

[43] Jeffrey Bone (n 9).

[44] Rogene A Buchholz and Sandra B Rosenthal (n 9); Allen Kaufman and Ernie Englander (n 9).

[45] Kate Grosser and Jeremy Moon (n 9).

[46] Banu Ozkazanc-Pan (n 9).

[47] Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power (Free Press, 2004).

[48] Janine Pascoe (n 10) 49.

[49] Peta Spender (n 10).

[50] Ibid, 198.

[51] Ibid.

[52] Julie Cassidy (n 10).

[53] Dianne Otto (n 10).

[54] Kathleen A Lahey and Sarah W Salter (n 10); Peta Spender (n 10); Silke Machold, Pervaiz K Ahmed and Stuart S Farquhar (n 10).

[55] Ronnie Cohen (n 10).

[56] Anowar Zahid (n 11).

[57] Saheed Abdullahi Busari et al. (n 11).

[58]Raed El-Saadouni (n 11).

[59] Anowar Zahid (n 11).

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