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

Dana owns all the shares in Brightway Ltd. She transfers her personal debt of 50,000 to the company and the company pays it. A creditor of Brightway Ltd later claims that Dana is personally liable for the company's debts simply because she is the sole shareholder. Which statement is correct?

Dana is not personally liable just because she is the sole shareholder. A company is a separate legal person from its members, so its debts are its own. The veil would be lifted only in exceptional cases such as fraud or sham, which are not present.

  1. ADana is personally liable for all company debts because she owns every share
  2. BDana is not liable merely because she is the sole shareholder, as the company is a separate legal personCorrect
  3. CDana is liable only if the company has fewer than two directors

Explanation

Under the principle of separate legal personality (Salomon v Salomon), a company is distinct from its members, even a sole shareholder. Ownership of all shares does not by itself make the member liable for company debts. The veil is lifted only in limited situations such as fraud or sham, which are not shown here.

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