Shareholders can also be held personally liable?
General Principle: A Company Is a Separate Legal Entity
- A company is a separate legal entity
- Directors and shareholders are generally not personally liable for the company's debts
When Can Personal Liability Arise?
- If a company is used to:
- Avoid legal responsibility
- Shift risks
- Evade debts
- Commit fraud
- The court may lift the corporate veil
- And hold the individuals personally liable
Case Example: Ong Leong Chiou v Keller
- Bina Puri subcontracted the project to Perfect Selection
- Perfect Selection further subcontracted it to PS Bina
- Keller completed the work but was never paid
- The court found that:
- PS Bina was a shell company
- It was used to shift liability and avoid payment
Court's Decision
- Tony Ong was both a director and shareholder of Perfect Selection and PS Bina
- The court held that the corporate structure had been abused
- The court ordered:
- Tony Ong
- PS Bina
- Perfect Selection
- To be jointly liable for the outstanding payment
Summary
- A company is a separate legal entity
- However, it cannot be used as a tool to commit fraud or escape legal responsibility
- Where the corporate structure is abused, the court may hold directors or shareholders personally liable