192 12: Corporations and legal personality Part D The formation and constitution of business organisations
Chapter Roundup
In a sole tradership, there is no legal distinction between the individual and the business.
A company has a legal personality separate from its owners (known as members). It is a formal
arrangement, surrounded by formality and publicity, but its chief advantage is that members' liability for
the company's debts is typically limited.
The fact that a company's members – not the company itself – have limited liability for its debts protects
the members from the company's creditors and ultimately from the full risk of business failure.
Most companies are those incorporated under the Companies Act. However there are other types of
company such as corporations sole, chartered corporations, statutory corporations and community
interest companies.
A company may be private or public. Only the latter may offer its shares to the public.
To trade a public company must hold a Registrar's trading certificate having met the requirements,
including minimum capital of £50,000.
The main differences between public and private companies relate to: capital; dealings in shares,
accounts; commencement of business; general meetings; names; identification; and disclosure
requirements.
There are a number of other ways in which companies can be classified. The case of Salomon v Salomon & Co Ltd 1897 clearly demonstrates the separate legal personality of
companies.
Incorporation 'veils' members from outsiders' view but this veil may be lifted in some circumstances, so
creditors and others can seek redress directly from members. The veil may be lifted: by statute to enforce
the law; to prevent the evasion of obligations; and in certain situations where companies trade as a group.
It is sometimes necessary by law to look at who the owners of a company are. This is referred to as
'lifting the veil'.
Because it is a separate legal entity, a company has a number of features which are different from a
partnership. The most important difference between a company and a traditional partnership is that a
company has a separate legal personality from its members, while a traditional partnership does not.