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:
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