The Formation and Constitution of Business Organisations: Corporations and Legal Personality

TYPES OF COMPANIES
There are various types of companies which can be registered in terms of different liabilities:
1) Formed without liability (unlimited companies):
Such companies receive all the benefits which flow from incorporation except limited liability;
The shareholders remain liable to the full extent of their personal wealth for any unpaid debt of the
company;
Any subsequent debt is owed to the company and not directly to the creditors;
These companies do not have to submit their accounts and make them available for public inspection.
2) Limited by Guarantee (charities and education bodies):
It limits the member's’ liability to an agreed amount;
The sum guaranteed is usually a nominal sum, so no real risk is involved;
3) Limited by Shares (charities and education bodies):
The effect is to limit the liability to the amount remaining unpaid on shares held;
If the shareholder has paid the full nominal value of shares then that is the end of responsibility with regard
to company debts;
If the company goes into liquidation, the shareholders can’t be required to contribute to its assets in order to
pay out the debts;
Can be either Public Limited Companies (PLC) or Private Limited Companies (Ltd.).

LIMITED LIABILITY:
Limited liability is a type of liability that does not exceed the amount invested in a limited partnership or limited
liability company. It is one of the biggest advantages of investing in publicly listed companies.
Shareholders can participate wholly in a growth of the company while liability is restricted to amount invested. In
a limited partnership the limited partners have limited liability, while the general partner has unlimited liability.
The limited liability feature protects the investors or partners personal assets while allowing them to invest.

LEGAL PERSONALITY:
The principle of separate legal personality states that a corporation has separate legal personality, rights and
obligations totally distinct from those of its shareholders.
Upon incorporation a company becomes a new and independent legal entity and it is completely separate
from the subscribers who formed it and manage it;
A company can sue in it’s own name and may be sued;
A company can own property and assets.
On the one side the rights of members were limited, and on the other side a creditor’s practical ability to seek
redress was also limited. In order to balance this, the courts can pierce the veil of incorporation under certain
circumstances:
1) Agency;
2) Fraud;
3) Group enterprises;
4) Trusts;
5) Enemy;
6) Tax;
7) Companies Act.