LEGAL PRINCIPLE: COMPANY LAW – Separate Legal Personality – Parent and Subsidiary Companies
PRINCIPLE STATEMENT
A subsidiary company has its own separate legal personality; generally the act of a subsidiary company cannot be imputed to the parent company nor can the act of the parent company be imputed to the subsidiary company.
RATIO DECIDENDI (SOURCE)
"A subsidiary company has its own separate legal personality. So, generally the act of a subsidiary company cannot be imputed to the parent company nor can the act of the parent company be imputed to the subsidiary company."
EXPLANATION / SCOPE
Subsidiary companies, despite parent ownership, are separate legal persons. This means: subsidiaries’ acts don’t bind parents, parents’ acts don’t bind subsidiaries, each has separate assets/liabilities, and each contracts independently. The parent-subsidiary relationship alone doesn’t justify: attributing subsidiary’s liabilities to parent, holding parent liable for subsidiary’s torts/breaches, or binding subsidiary to parent’s obligations. This general rule has exceptions allowing veil-piercing: fraud or sham, agency relationship (subsidiary as parent’s agent), complete control (subsidiary as parent’s alter ego), or statutory provisions imposing group liability. Without such exceptional circumstances: each company bears only its own obligations, contracts bind only signatory companies, and judgments affect only defendant companies. This principle protects: limited liability principle, corporate group structures, and parent companies from automatic subsidiary liability. However, it can be abused—hence veil-piercing exceptions (see Principle 414) for genuine cases of unity or fraud. The default is separation; unity requires proof.