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

Mara owns all the shares in Zenko Ltd and is its only director. Zenko Ltd enters a contract with Pell Ltd and later fails to pay the price. Pell Ltd sues Mara personally, arguing that she and the company are the same. No fraud or sham is alleged. What is the most likely outcome?

Mara is not liable. A company is a separate legal person from its shareholders and directors, even when one person owns all the shares and controls it. The veil is lifted only in exceptional cases such as fraud or sham, which are not alleged here.

  1. AMara is not liable, because the company is a separate legal person from its shareholdersCorrect
  2. BMara is liable, because she owns all the shares and controls the company
  3. CMara is liable, because she is the sole director and so must be the contracting party
  4. DMara is liable, because a single-member company has no separate personality

Explanation

Under the principle of separate legal personality (Salomon v Salomon), a company is distinct from its members even where one person owns all the shares and controls it. The veil is lifted only in limited circumstances such as fraud or sham, which are not alleged. Ownership and control alone, as in options B and C, are not enough.

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