Separate legal identity & limited liability
Facts and guidance for ‘separate legal identity’
Examples of businesses with ‘Sperate legal identity’
Companies and Limited Liability partnerships have separate legal identities
Limited companies are recognised by ‘Ltd’ – these have separate legal identities
Consequences of a separate legal identity:
The company owns its assets – not the owners. If insurance is needed over the
assets, it will be in the company’s name.
The company will enter into contracts – it is the directors who act as agents and
enter into contracts on the company’s behalf.
Contractual obligations are the company’s – the company must keep up with
obligation incurred by entering into the contract
Breaches of a contract will be caused by the company – terms of the contract will
stipulate how breaches are rectified
The company can borrow money – again it is the directors as the agents which put
this into process.
The company can grant security over its assets – directors act as the agents in these
scenarios.
A company can sue – it can start cases in its own name
Creditors will also sue the company for debts / breaches caused – as opposed to the
owners.
A company is taxed separately from the owners – corporation tax
The company will incur liability for debts in its own names and it will pay for the
debts.
The company can own shares in another company – if the smaller company cannot
pay its debts, ‘The company’ is only liable to the extent of its unpaid shares – a
creditor cannot seek debts from ‘The Company’.
The Agency Argument: The company would act as an agent for the smaller company
– but both still have a separate legal identity
The One-man Company Argument: even if a company is still owned by one single
person other shareholder or director, separate legal identity exists and the single
owner cannot be sought out for debts – unless the company was created to be a
‘sham’.
Single Economic Unit Argument: That parent companies and their subsidiaries are
viewed as one single unity and not liable for their own debts – this argument failed
due to principle of a separate legal identity.
The Concealment Principle: does not invalidate the principle of separate legal
identity, it is just used to find the ‘real actors’ in the corporate structure.
The Corporate Veil argument: The disregarding of the separate personality of the
company when a person is under an existing legal obligation or liability or subject to
an existing legal restriction which he deliberately evades, or whose enforcement he
deliberately frustrates, by interposing a company under his control.
Separate leal identity and debts & creditors:
Facts and guidance for ‘separate legal identity’
Examples of businesses with ‘Sperate legal identity’
Companies and Limited Liability partnerships have separate legal identities
Limited companies are recognised by ‘Ltd’ – these have separate legal identities
Consequences of a separate legal identity:
The company owns its assets – not the owners. If insurance is needed over the
assets, it will be in the company’s name.
The company will enter into contracts – it is the directors who act as agents and
enter into contracts on the company’s behalf.
Contractual obligations are the company’s – the company must keep up with
obligation incurred by entering into the contract
Breaches of a contract will be caused by the company – terms of the contract will
stipulate how breaches are rectified
The company can borrow money – again it is the directors as the agents which put
this into process.
The company can grant security over its assets – directors act as the agents in these
scenarios.
A company can sue – it can start cases in its own name
Creditors will also sue the company for debts / breaches caused – as opposed to the
owners.
A company is taxed separately from the owners – corporation tax
The company will incur liability for debts in its own names and it will pay for the
debts.
The company can own shares in another company – if the smaller company cannot
pay its debts, ‘The company’ is only liable to the extent of its unpaid shares – a
creditor cannot seek debts from ‘The Company’.
The Agency Argument: The company would act as an agent for the smaller company
– but both still have a separate legal identity
The One-man Company Argument: even if a company is still owned by one single
person other shareholder or director, separate legal identity exists and the single
owner cannot be sought out for debts – unless the company was created to be a
‘sham’.
Single Economic Unit Argument: That parent companies and their subsidiaries are
viewed as one single unity and not liable for their own debts – this argument failed
due to principle of a separate legal identity.
The Concealment Principle: does not invalidate the principle of separate legal
identity, it is just used to find the ‘real actors’ in the corporate structure.
The Corporate Veil argument: The disregarding of the separate personality of the
company when a person is under an existing legal obligation or liability or subject to
an existing legal restriction which he deliberately evades, or whose enforcement he
deliberately frustrates, by interposing a company under his control.
Separate leal identity and debts & creditors:
