Legal personality and limited liability (Business organisations, rules and procedures)-FS Flashcards
(8 cards)
What is meant by the principle of separate legal personality in company law?
Separate legal personality means that a company is a distinct legal entity from its shareholders and directors. It can own property, enter into contracts, and is responsible for its own debts.
Which case established the principle of separate corporate personality in English law?
The case of Salomon v Salomon established that a company is a separate legal entity, not an agent or trustee for its shareholders.
What legal protection does separate legal personality offer to shareholders and directors?
It offers limited liability, meaning shareholders and directors are not personally liable for the company’s debts or obligations, unless specific exceptions apply.
Does the identity of shareholders or directors affect the legal status or existence of a company?
No. A company continues to exist independently of its shareholders or directors. Changes in ownership or management do not affect the company’s legal existence.
Can a creditor pursue shareholders personally for company debts if the company cannot pay?
No, not normally. Creditors cannot pursue shareholders personally due to the corporate veil, which shields them from company liabilities.
What is meant by “piercing the corporate veil”?
It refers to the rare legal process where a court disregards the company’s separate legal personality and holds shareholders or directors personally liable for the company’s obligations.
Under what circumstances can the corporate veil be pierced, according to Prest v Petrodel Resources Ltd?
The veil can be pierced only if a person uses the company to deliberately evade an existing legal obligation or to disguise their identity to avoid enforcement.
Why was the shareholder in Salomon v Salomon not held liable for the company’s debts?
Because the company was recognized as a separate legal person, and ownership of shares does not create a relationship of agency or trust that would impose personal liability.
