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12 Separate legal entity

Separate legal entity

Section 16(6) of the Act defines members as subscribers to the Memorandum of Association of a company and their names entered in the register of members of the company. The concept of a separate legal entity is that once a company is incorporated, the company becomes a legal person distinct from its members. The effect is that the company as a legal person can buy land and properties. It can enter into a contract and it can sue or be sued on it.

The other important aspect of incorporation is the effect of limited liability on its members. The effect of limited liability means that the members of a company are not liable for all the company’s debts but only up to the amount unpaid on the shares held by them, as in Section 18(3) of the Act.

However, the law does not permit a complete absence of liability on the part of the members. Members’ liabilities are limited to the extent that each member is liable to contribute, if called upon to do so, the full nominal value of his shares so far as this has not already been paid. If he/she has agreed to pay more than the nominal value, then his/her liability is limited to the amount he/she has agreed to pay.

Figure 1.1 Effect of separate legal entity

 

Activity 1.1
Question to Activity 1.1 Suggested answers to activity 1.1

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Separate legal entity Copyright © 2011 by Wawasan Open University. All Rights Reserved.

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