Question A.1 Internal rules control the relationship between the company as a separate legal entity and...

Question A.1

Internal rules control the relationship between the company as a separate legal entity and its two main constituents – its members and officers (e.g. directors and company secretary). Identify and explain the ways companies can set up their internal rules briefly.

Expert Solution

The term “separate legal entity” is a fundamental concept in law that underlies business law and legal liability.

Not getting it right means that you could:

trade in a way which makes you personally liable for the activities of a company, rather than the company itself
sign contracts which make you jointly and severally liable on a contract, when you don’t intend to
sign a contract with a non-existent legal entity, and make the contract unenforceable
sign a contract with the wrong company within a group of companies
lead to unwanted legal proceedings. The proceedings could be brought for say breach of contract, fraudulent misrepresentation, a claim on an indemnity or some other cause of action against you, rather than the legal entity. If it's successful, it can lead to personal liability on the claim.

And it’s all avoidable.

Unless you're already a lawyer you might want to read on, because they're some things that you may not know, that may make a difference to your business and what you do next.

A separate legal entity is a person recognised by law - a "legal person". The entity has its own legal rights and obligations, separate to those running and/or owning the entity.

That person could be a company, limited liability partnership, or any other entity recognised by law as having its own separate legal existence.

An “incorporated” entity - such as a company - is a separate legal entity. That’s a separate legal existence to its:

founders: the natural persons that caused it to be formed
directors: those that control the company

A legal entity, typically a business, that is defined as detached from another business or individual with respect to accountability. A separate legal entity may be set up in the case of a corporation or a limited liability company, to separate the actions of the entity from those of the individual or other comp

ekkarill92 answered 1 year ago

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