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

Amara is the sole shareholder and managing director of Zenith Ltd, a registered company. Zenith Ltd borrows 200,000 from a bank, with no personal guarantee from Amara, and then becomes insolvent with assets of only 50,000. Which statement best describes the position of the bank under company law?

The bank can claim only against Zenith Ltd. A registered company is a separate legal person, so its debts are its own, and a shareholder with no personal guarantee is liable only for any unpaid amount on her shares, even if she owns and runs it alone.

  1. AThe bank can claim the unpaid 150,000 from Amara personally, because she controls the company
  2. BThe bank can claim only against Zenith Ltd, because the company is a separate legal person and Amara has no liability beyond any unpaid amount on her sharesCorrect
  3. CThe bank can claim from Amara personally only if she is also a director, since directors bear the debts of insolvent companies
  4. DThe bank can claim against Amara and Zenith Ltd equally, because a one-member company is treated as her sole trade

Explanation

On incorporation the company is a separate legal person from its members (Salomon v Salomon). The debt is the company's, so the bank's claim lies against Zenith Ltd. Amara's liability as a member is limited to any amount unpaid on her shares, and there is no personal guarantee. Option A is wrong because control alone does not remove the separate personality.

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