Chapter 9- Corporation and legal personality

Corporate veil
A legal concept that separates the personality of a corporation from the personalities of its shareholders
and protects them from being personally liable for the company’s debts and other obligations.

Lifting veil of incorporation

At times it may happen that the corporate personality of the company is used to commit frauds and
improper or illegal acts. Since an artificial person is not capable of doing anything illegal or fraudulent,
the façade of corporate personality might have to be removed to identify the persons who are really
guilty. This is known as ‘lifting of corporate veil’.

 The Companies Act 2006(TSO,2006) and the Small Business, Enterprise and Employment Act
2015(TSO,2015)

Sole Trader
They run their own business. They contribute capital to start the enterprise and run it without
employees and earn the profits and stand losses.

Eg-Retail traders like local newsagents, small scale service industries like plumbers, small manufacturing,
and craft industries.

Legal status of Sole trader

 The business is not legally distinct from its owner.

Advantages Disadvantages
1- No formal procedure is needed to set up in 1- Business can be impacted by the demise of the
business. owner.
2- No requirement to consult with anybody about 2- The owner is accountable for all debts and
business decisions. liabilities.
3- Business accounts are kept private. 3- long working hours and difficult in managing the
business in off season or sickness.

4- All profits accrue to the owner/sole trader. 4- Limited business skills.

5- Owner is responsible for business operation 5-Limited financing. Risk of selling own property
and functionality. for generating capital.
6- Personal contact or touch with customer can 6- Lack of economies of scale
impact commercial flexibility of business.
Companies