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ACCA Applied Skills · Corporate and Business Law (Global) · The formation and constitution of a company

Alpha Holdings Ltd owns all shares in Beta Ltd, which operates a mine. Beta Ltd is properly capitalised, keeps its own accounts and has its own directors. A worker injured at the mine sues Alpha Holdings for compensation, arguing that the two companies form a single economic unit. Applying the general approach of the courts, what is the most likely outcome?

Alpha Holdings is most likely not liable. Courts treat each group company as a separate legal person, and neither full ownership nor the single economic unit argument is enough to lift the veil absent a sham, fraud or evasion of obligations.

  1. AAlpha Holdings is liable because a group is treated as a single economic entity
  2. BAlpha Holdings is liable because it owns 100% of Beta Ltd
  3. CAlpha Holdings is not liable, because each group company is a separate legal person and no sham or evasion is shownCorrect
  4. DAlpha Holdings is liable only if Beta Ltd's directors are also directors of Alpha Holdings

Explanation

Courts generally refuse to treat a group as a single entity. A parent is not liable for a subsidiary's obligations merely through ownership or the group structure. Without a sham, fraud or evasion, the veil remains in place and the claim lies against Beta Ltd.

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