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

Marta and Joel each hold 50% of the shares in Brightwave Ltd, a private company limited by shares. Brightwave Ltd signs a supply contract with Norden Co, but later fails to pay. Norden Co wishes to recover the debt. Which statement correctly describes the legal position?

Norden Co can sue only Brightwave Ltd. The company is a separate legal person that made the contract, so it alone is liable. Marta and Joel, as shareholders in a limited company, are not personally liable for its debts beyond any unpaid share capital.

  1. ANorden Co can sue Marta and Joel personally because they own the company and control its decisions
  2. BNorden Co can sue Brightwave Ltd only, because the company is a separate legal person that made the contractCorrect
  3. CNorden Co can sue Brightwave Ltd, and Marta and Joel are automatically liable for the unpaid balance of the debt
  4. DNorden Co has no right of action because a company cannot be a party to a contract in its own name

Explanation

A company has separate legal personality, so it contracts in its own name and is the party liable on the contract. Shareholders are liable only to pay unpaid amounts on their shares, not the company's debts. The option making Marta and Joel automatically liable ignores the veil of incorporation and limited liability.

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