ACCA Applied Skills · Corporate and Business Law (Global) · Business, political and legal systems
Marta and Joel run a bakery together and have not registered any separate entity. They share profits equally and have never signed a formal agreement. Under a typical common law system, a supplier is owed money for flour. Which statement about the position of Marta and Joel is correct?
Marta and Joel are personally liable for the flour debt. An unregistered business run jointly for profit is an unincorporated partnership with no separate legal personality, so the owners, not the business, owe the debts. Limited liability is available only to registered entities such as companies.
- AThey are each personally liable for the debt because the business has no separate legal personalityCorrect
- BOnly the partner who placed the order is liable, because the business is a separate legal person
- CNeither is liable, because the supplier can sue only the business name
- DTheir liability is limited to the capital each has contributed
Explanation
A business carried on by two people with a view to profit, with no incorporation, is a partnership (or similar unincorporated business) which has no separate legal personality. The owners are therefore personally liable for its debts. The option limiting liability to capital describes a company limited by shares or an LLP, which requires registration, so it is wrong here.
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