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ACCA Applied Knowledge · Business and Technology · The purpose and types of business organisation

Brightway Ltd, a company, is owned and controlled by its sole shareholder, Mr Cole, who is also its only director. The company owes a supplier $80,000 and has few assets. The supplier wishes to claim the debt from Mr Cole personally. Which statement is most accurate, assuming no personal guarantee and no fraud?

The supplier can claim only against Brightway Ltd. A company is a separate legal person even if one individual owns and controls it, so its debts are its own. Without a personal guarantee or fraud, Mr Cole is not personally liable beyond any unpaid share capital.

  1. AThe supplier can claim only against Brightway Ltd, because the company is a separate legal personCorrect
  2. BThe supplier can claim against Mr Cole, because he controls the company
  3. CThe supplier can claim against Mr Cole, because he is the only shareholder
  4. DThe supplier can claim against Mr Cole, because a one-person company has no separate personality

Explanation

Separate personality applies even where one person owns and controls the company. The debt is the company's, and the shareholder's liability is limited. Only fraud, sham use of the company or a personal guarantee would normally allow the veil to be lifted, and none applies here.

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