Separate Legal Personality
&
Limited Liability
16th April 2013

Content: 1. Separate Legal Personality a) Rights and Duties b) Legal Process c) Child Register d) Complexity e) Artificial Legal Person f) Incorporation g) Legal Process - Incorporated

Advantages: * Limited Liability * Continues to exist * Better financial position * Corporation’s legal liabilities are its own and not its members’, so member are not generally liable for the company’s debts. Limited Liabilities means they not enjoy complete immunity, it is generally limited to the sum they have agreed to invest, even if the company runs out of money and cannot satisfy its members. Most corporations limit their liabilities by shares but it is also possible to limit is by guarantee.

Disadvantage: * Government Regulation * Double Taxation

2. Limited Liability Company * Also known as LLC * Owner of a LLC are limited to what they are financially responsible if the business goes into debt * No minimum or maximum number of members needed to form a LLC * Individual business owner can create a LLC

3. Exceptions to Separate Legal Personality * LLC should not be confused with corporation or partnership. * The proprietors of a LLC are referred to as “members.” * LLC are fairly new business structures. Can be created in any state, however rules are different for each state * There are few types of business that are not allowed to become LLC, such as insurance companies and financial institutions.

4. Exceptions to Limited Liability – Advantages * Separate legal identity- a LLC has a legal existence separate from management and its members (the shareholders). * Legal protection- the member only liability is for the amount unpaid on their shares, since most private companies issue shares as “fully paid” if things go wrong members only loss is the value of the shares and any loans made to the company * Once formed a company has a everlasting life * New shareholders and investors can be easily introduced

Disadvantages: * Transparency- information about the company is held at company house, which means any member of the public can view details about the company * Accounting requirements- due to the fact that running a LLC is generally more tax efficient (with lower tax rates) than any other form of business, stricter rules around accounting * More reporting- LLC and partnership have more reporting requirements placed on them. They are required to submit annual returns and accounts to company house, also to keep up to date with any changes within the company. Which can be off putting for dose who want to run a business, there is no privacy when forming an LLC

When Separate legal personality does not apply * What is separate legal personality (SLP)? * English case of Salomon vs. Salomon (1897) * SLP does not apply in some instance; referred to as lifting the veil of incorporation * E.G. Personal guarantees, fraudulent trading, wrongful trading and abuse of corporate personality

Personal Guarantee * What is a personal guarantee? * Lenders evaluate borrowers capability to repay * Small businesses tend to not be able to get loans without a personal guarantee

Disadvantage
Personal guarantee allows the lender to go after borrowers personal assets. Fraudulent trading: * What is fraudulent trading? * Example of manufacturing plant * 3rd party usually has to admit it benefited from fraudulent activity * Sanctions for fraudulent trading: * Disqualification of directors position in any business * Imprisonment

Wrongfull Trading * What is wrongful trading? * How does wrongful trading differ from fraudulent trading? * Example of wrongful trading * In a nutshell wrongful trading can be understood as being irresponsible trading and