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

Tarun owns all the shares in Delta Freight Ltd and is its only director. Delta Freight Ltd signs a supply contract with Rowan Ltd and later breaches it. Rowan Ltd wants to sue. Who is the proper defendant under the principle of separate personality?

Delta Freight Ltd is the proper defendant because it was the contracting party. Separate personality means Tarun is not liable merely because he owns all the shares and acts as director, absent fraud, a guarantee or another exception.

  1. ATarun personally, because he owns all the shares
  2. BDelta Freight Ltd, because it was the contracting partyCorrect
  3. CBoth Tarun and Delta Freight Ltd automatically

Explanation

The company, not its shareholder, made the contract, so the company is liable (as in Salomon v Salomon). Owning all the shares does not make Tarun a party. Personal liability would need a recognised exception such as fraud or a personal guarantee, and none is given.

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