The essence of a company is that it has a legal personality distinct from the people who create it. This means that even if the people running the company are continuously changing, the company itself retains its identity and the business need not be stopped and restarted with every change in the managers or members (shareholders) of the business. If the company is a limited liability company not only is the money owned by the company regarded as wholly distinct from the money owned by those running the company, but also the members of the company are not liable for the debts of the company (except where the law has made exceptions to this rule in order to prevent fraudulent or unfair practices by those in charge). Members can only be called upon to pay the full price of their shares. After that a creditor must depend on the company’s money to satisfy his claim. This limitation of the liability of the members has led to careful rules being drawn up to attempt to prevent a company from wasting its money (Chapter 9). It is one of the disadvantages of incorporation that a number of formal rules, designed to protect people doing business with companies, have to be complied with. A partnership which consists of people carrying on a business with a view to making profits has many fewer formalities to be complied with. On the other hand, the members of a partnership are liable for all the debts incurred by the business they run.
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Bibliography and Further Reading
- Fraser, ‘The Corporation as a Body Politic’ (1983) Telos, no. 57, 5.Google Scholar
- Hart, ‘Definition and Theory in Jurisprudence’ (1954) 70 LQR 37.Google Scholar
- Pickering, ‘The Company as a Separate Legal Entity’ (1968) 31 MLR.Google Scholar
- Twining (ed.) Legal Theory and Common Law, Oxford, 1996.Google Scholar
- Wedderburn, ‘The Social Responsibility of Companies’ (1985) 15, Melbourne U L Rev, 4.Google Scholar
- Wolff, ‘On the Nature of Legal Persons’ (1938) 54 LQR 494.Google Scholar