LAW2480 Chap.7 Business Structures and Separate Legal Personality
Business Structures and Separate Legal Personality
Choosing a business structure changes control, liability, continuity, capital raising and compliance. Sole traders, partnerships, trusts and companies allocate those features differently. Registration gives a company separate legal personality, so its property, debts and legal rights are not ordinarily those of its members or directors.
Limited liability concerns the member's exposure, while the company's own liability remains. Problems should begin by identifying the entity and transaction before considering agency, personal assumption of liability or an exceptional basis for looking beyond the company.
What this chapter covers
- 01
Sole trader
- 02
Partnership
- 03
Trust structure
- 04
Registered company
- 05
Separate legal personality
- 06
Limited liability and exceptions
Worked example · free
Choose a structure from commercial priorities
- +1Rank the stated priorities instead of assuming one structure maximises every objective.
- +2Compare ownership, control, liability and continuity across the plausible choices.
- +2Compare capital access, transfer and compliance burden.
- +1Recommend conditionally and identify the trade-off the founders must accept.
Key terms
- Sole trader
- An individual carrying on business without a separate registered entity.
- Partnership
- A relationship between persons carrying on business in common with a view to profit.
- Trust
- A relationship in which a trustee holds and administers property for beneficiaries or purposes.
- Company
- A registered body corporate with legal personality separate from its participants.
- Limited liability
- A limit on a member's contribution or exposure according to the form and terms of the company.
Business Structures and Separate Legal Personality FAQ
Is a company the same as its shareholders?
No. Registration creates a legal person distinct from members and directors. The company owns its assets, incurs its debts and holds its causes of action, even where one person controls all shares.
Does limited liability mean no one can be personally liable?
No. It describes the member's position in relation to company debts, subject to the legal structure. Directors, agents or others may incur personal liability through their own conduct, guarantees or particular statutory rules.
Which structure is always best for a small business?
None. The answer depends on control, liability, continuity, tax advice, capital needs, transfer, cost and compliance. A strong recommendation identifies priorities and trade-offs instead of presenting incorporation as automatically superior.
How do I keep the company separate in a problem answer?
Draw separate boxes for the company, each member and each director. Allocate every asset, debt, contract, representation and act to the correct legal person before analysing liability. Ask who signed, who owned the property, whose loss occurred and whether an individual gave a guarantee or committed a direct wrong. Control of all shares does not transfer company property to the controller.
If a personal route exists, state its independent legal basis rather than saying the corporate veil disappears. This discipline prevents an answer from moving casually between participants and the registered entity.
Exam move
Keep a structure comparison grid with rows for legal identity, ownership, control, liability, continuity, capital, transfer and compliance. For each scenario, circle the two priorities that actually drive the decision and discuss conflicts between them. Then write a separate legal-personality paragraph for any company problem: identify who owns the asset, who signed the obligation and who committed the conduct.
That prevents casual movement between the company, shareholder and director. Practise recommendations from a client priority list rather than from structure names. Rank limited exposure, direct management, continuity, investment, privacy, transfer and administrative burden, then compare only plausible options. State what the recommended form improves and what it makes more difficult.
For partnerships, separate formation of the relationship from authority and liability consequences. Conduct can matter even when the parties avoided the label. For trusts, identify the trustee as the actor dealing with outsiders and avoid describing the trust as though it were automatically a registered corporation. For company problems, draw three boxes for company, member and director.
Place every asset, debt, contract and act in the correct box before applying exceptions or personal obligations. If a guarantee exists, treat it as a separate undertaking rather than evidence that corporate personality disappeared. This method keeps ownership, control and liability distinct and produces a recommendation that responds to facts rather than repeating generic advantages and disadvantages.
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