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

Amara starts a business and incorporates Zenith Ltd, of which she is the sole shareholder and director. Zenith Ltd signs a supply contract with Boran Ltd and then fails to pay. Boran Ltd sues. Which statement best describes the general legal position?

Boran Ltd can sue only Zenith Ltd. A company has its own legal personality separate from its shareholder and director, so the contract binds the company, and Amara's sole ownership or control does not make her personally liable for its debts.

  1. ABoran Ltd can sue only Zenith Ltd, because the company is a separate legal person from AmaraCorrect
  2. BBoran Ltd can sue Amara personally, because she owns all the shares
  3. CBoran Ltd can sue Amara personally, because she made all the company's decisions
  4. DBoran Ltd has no remedy, because a one-person company cannot be sued

Explanation

A company is a separate legal person from its members, as in Salomon v Salomon. The contract is the company's, so the company is the party to be sued. Ownership of all shares or control of decisions does not by itself make the shareholder liable.

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