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CS Executive · Company Law and Practice · Legal Status and Types of Registered Companies

Orion Ltd is a holding company of Vega Pvt Ltd. Vega is a separate legal entity, but Orion directs all its decisions, takes all its profits and Vega has no independent business. Creditors of Vega sue Orion. Which statement best reflects the legal approach?

Courts start from the separate personality of each group company, so ownership alone does not make the parent liable. They may disregard it where the subsidiary is a sham or mere agent of the parent, which depends on the facts shown.

  1. AOrion is always liable since a holding company owns the subsidiary
  2. BOrion is never liable under any circumstances because the subsidiary is separate
  3. COrion is liable only if Vega is a public company
  4. DCourts generally respect separate entities, but may disregard Vega's separateness where it is a mere sham or agent, the facts must show this beyond mere ownershipCorrect

Explanation

Group companies are separate persons, and ownership alone does not make the parent liable. Courts may treat the subsidiary as an agent or sham in cases such as DHN Food Distributors, on the facts, so the answer is neither always nor never. Option C wrongly ties the result to public company status.

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