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

Karim is the sole shareholder and director of Zenith Ltd. Zenith Ltd is properly run and has never been used for improper purposes. It enters a contract to buy goods from Lena, then fails to pay because it lacks funds. Lena wants to sue Karim personally. Which statement is correct?

Karim is not personally liable. Zenith Ltd is a separate legal person that made the contract, and total control by one shareholder-director, or the company's inability to pay, does not justify lifting the veil without fraud, evasion or a sham.

  1. AKarim is personally liable because he controls Zenith Ltd completely
  2. BKarim is personally liable because the company could not pay its debts
  3. CKarim is not personally liable, because the company is a separate legal person and there is no basis to lift the veilCorrect
  4. DKarim is liable up to the amount of the unpaid contract price only if he is a director

Explanation

The company, not Karim, is the contracting party. Full control by one person does not by itself justify lifting the veil, and inability to pay is a normal business risk. No fraud or façade exists, so the veil stays intact and Karim is not liable.

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