Skip to content

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

Carlos is the sole director and shareholder of Brightline Co. He transfers his personal debts to the company and uses the company to dodge a court order against him personally. A court may disregard the company's separate personality. What is this known as?

This is lifting the corporate veil. Where a company is used as a sham or to evade legal obligations or commit fraud, a court can ignore its separate legal personality and hold the individuals behind it responsible for its actions or debts.

  1. ALifting the corporate veilCorrect
  2. BCapital maintenance
  3. CPerpetual succession

Explanation

Courts can lift (pierce) the corporate veil where the company is used as a facade for fraud or to evade legal obligations, treating the owner and company as one. Capital maintenance concerns protecting share capital, and perpetual succession means the company continues despite membership changes.

Did you get it right without looking?

One question tells you little. A timed set on The purpose and types of business organisation shows your real accuracy, how long you take and where you lose marks.

Practise The purpose and types of business organisationFree diagnostic mock

More The purpose and types of business organisation questions