COMPANY LAW – Separate Legal Personality – Parent and Subsidiary Companies

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.