Reading: Separate legal personality and groups of companies
Business may be run either in unincorporated or incorporated form.
Un- few admin steps, usually treated the same as its owners, same legal status.
I.e. sole traders
In- formal registration, separate legal status.
SOLE TRADER
Runs a business on their own and are self-employed. There are no formal steps needed
t0 set up as a sole trader apart from registering with HM Revenue.
They are personally liable for all the debts of the business and has no legal status of
their own, so all assets are treated as one. So if the sole trader is unable to pay off their
debts using business and personal assets, they are made bankrupt. “Unlimited liablity.”
So a sole trader is a person who alone;
a) Right to make all decisions affecting the business
b) Owns all the assets of the business
c) Is responsible for paying income tax on all profit
d) Unlimited liability for debts of the business
PARTNERSHIP
Where two or more persons run and own a business together.
a) Share the right to take part in making decisions which affect the business or the
business assets (although they may have agreed otherwise)
b) Share the ownership of the assets of the business
c) Share the profits of the business
d) Share unlimited liability of the debts
, I
NTRODUCATION TO THE COMPANY
A business or company will be formed under s7 of the CA 2006.
The formation of a company results in two fundamental consequences,
Has a separate legal personality
The members of a limited company have limited liability
These are the biggest advantages for the entrepreneur in choosing to run her business
as a company.
SEPARATE LEGAL PERSONALITY
Following the decision of the HoL held in Saloman v Saloman & Co (1897) holding that
the company’s acts were its own acts, not those of Mr S personally, even though he
was the only person involved in running the company and owned the largest share.
Meaning that the company has a separate entity from owner and who run it on a day to
day basis.
Property;
Company owns its property, doesn't belong to members of the company.
Macaura v Northern Assurance Co Ltd 1925, insuring company in own name and
not company.
Contracts;
In its own name, the company will enter into the contract with third parties and
incur contractual rights and obligations.
Borrowing;
A company is able to borrow money and give security over assets.
The company can borrow from its members, directors if willing. As it is its own
person can freely enter into these contracts.
Liability for debts;
Can incur debts in its own names
If can't pay?- The creditors who are owed must take action against the company
and cannot sue the members or directors in order to pay the debt. If successful to
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