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ACCA Applied Skills · Corporate and Business Law (Global) · Corporations and legal personality

Amara is the sole shareholder and director of Zenith Ltd, a company with limited liability. Zenith Ltd enters a contract to buy goods for 50,000 and then cannot pay. Which statement correctly describes who can be sued for the debt?

Only Zenith Ltd can be sued. A company is a separate legal person from its shareholders, so the contract binds the company alone. Amara's ownership and control do not make her personally liable for the company's debts.

  1. AAmara personally, because she controls the company
  2. BZenith Ltd, as the contracting party, because it is a separate legal personCorrect
  3. CBoth Zenith Ltd and Amara, jointly and equally
  4. DNeither, because a company cannot be sued for contractual debts

Explanation

On incorporation a company becomes a legal person separate from its members. The contract was made by Zenith Ltd, so only it is liable. Sole ownership and control do not make Amara a party, so option A is wrong.

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