The Companies Act 1997 says what a company is in a single sentence, and everything else in the Act follows from it.
Section 16 — separate legal personality
A company is a legal entity in its own right separate from its shareholders and continues in existence until it is removed from the register.
Two ideas are packed into that sentence, and both have hard practical consequences.
- Separateness. The company is not its shareholders and not its directors. It owns its own property, makes its own contracts, sues and is sued in its own name, and owes its own debts.
- Perpetual succession. The company does not end when a shareholder dies, sells out, or goes bankrupt. It ends only on removal from the register under Part XIX — usually after a liquidation.
| Consequence | Where it appears in the Act |
|---|---|
| The company owns the business assets, not the shareholders | ss 16, 17 |
| The company’s debts are its own; shareholders are liable only as section 79 provides | ss 16, 79 |
| The company contracts in its own name, through the people section 155 authorises | ss 17, 155, 156 |
| The company sues and is sued in its own name; a shareholder generally cannot sue for a wrong done to the company | ss 16, 143 |
| The company survives changes of ownership and of management | s 16 |
| A shareholder cannot deal with the company’s property as if it were their own | ss 16, 421 |
Section 11 — the four essential requirements
(a) a name; and
(b) one or more shares; and
(c) one or more shareholders, having limited or unlimited liability for the obligations of the company; and
(d) one or more directors.
Section 11 sets minimums of one, not two. A single individual may be the sole shareholder and the sole director. Section 12 confirms it: any person may, either alone or together with another person, apply for registration of a company, despite anything to the contrary in any other Act.
But there is a residence rule. Under section 128, a company shall have at least one director, and at least one director shall be ordinarily resident in the country.
“Limited liability” — what is actually limited
Section 11(c) allows shareholders to have limited or unlimited liability. In the ordinary case liability is limited, and section 79 explains exactly what that means.
A shareholder is not liable for an obligation of the company by reason only of being a shareholder. Their liability is limited to any amount unpaid on their shares, together with the specific liabilities the Act imposes — a liability to repay a distribution wrongly made under section 54, liability under the company’s constitution, and liability for calls.
It protects the shareholder from the company’s debts. It does not protect a director from:
- section 348 — liability where there is a failure to prevent insolvent trading;
- section 348A — liability where proper accounting records are not kept;
- section 423 — carrying on business fraudulently;
- sections 429A to 429F — the phoenix company provisions; or
- personal liability under a guarantee given to a bank or supplier, which is a matter of contract, not of company law.
Nor does incorporation launder a wrong. A director who commits a tort or an offence is personally answerable for it, whatever the company’s position.
How the separateness begins — and ends
A company exists from the date of incorporation stated in its certificate of incorporation. Under section 15, that certificate is conclusive evidence that all the Act’s registration requirements have been complied with and that the company is incorporated from that date — so its existence cannot be challenged by attacking the paperwork.
It ends on removal from the register. That may follow a liquidation under Part XVIII, or one of the other grounds in section 366. Removal is not always final: under sections 378 and 379 the Registrar or the Court may restore a company to the register, and under section 381 property that vested in the Registrar on removal revests in the company on restoration.
A company compared with the alternatives
| Structure | Separate legal person? | Governing law |
|---|---|---|
| Company | Yes — s 16 | Companies Act 1997 |
| Sole trader | No — the person is the business | General law; Business Names Act (Chapter 145) for the name |
| Partnership | No — partners are liable, and usually jointly | General law and the partnership agreement |
| Incorporated land group | Yes | Land Groups Incorporation Act |
| Overseas company | Yes, under its home law — but must register here to carry on business | Part XX of the Companies Act |
Registering a business name under the Business Names Act (Chapter 145) records who is trading under that name. It creates no separate legal person, gives no limited liability, and confers no trade mark rights. Foreign investors also need to consider the Investment Promotion Act 1992, which requires certification of a foreign enterprise before it carries on business here.
Sources
- Companies Act 1997 — ss 11–17, 79, 128, 155, 348, 348A, 366, 378–381, 421, 423, 429A–429F
- Business Names Act (Chapter 145)
- Investment Promotion Act 1992
- Land Groups Incorporation Act
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.