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ACCA Applied Skills · Corporate and Business Law (Global) · The formation and constitution of a company

Amara owns all the shares in Zenith Ltd, a company properly incorporated under the law of a Global jurisdiction. Zenith Ltd enters a contract to buy goods from Delta Ltd but later cannot pay. Delta Ltd claims against Amara personally, with no evidence of fraud or sham. Which statement is correct?

Amara is not personally liable. A properly incorporated company is a separate legal person from its shareholders, even a sole owner. Without fraud, a sham or another recognised ground for lifting the veil, the creditor can only claim against the company itself.

  1. AAmara is not personally liable, because Zenith Ltd is a separate legal person from its sole shareholderCorrect
  2. BAmara is personally liable, because she owns all the shares and so controls the company
  3. CAmara is personally liable, because a sole shareholder is treated as the company's agent

Explanation

Under the Salomon principle a company is a separate legal person from its members, even where one person owns all the shares. Without fraud, a sham or another ground for lifting the veil, the shareholder is not liable for the company's debts. The second and third options wrongly treat control or ownership as enough.

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