Business structures and corporate personality

In this lesson

1. 0:00 Business structures and legal personality overview
2. 1:02 Sole traders and ordinary partnerships compared
3. 2:48 Limited liability partnerships and companies explained
4. 4:25 Consequences of separate legal personality
5. 5:15 Solomon v Solomon case and principle application
6. 7:20 Disadvantages of incorporation and capital restrictions

About this lesson

You'll explore the concept of corporate personality—what it means for a business to be a separate legal entity—and discover how this affects liability, taxation, ownership, and control. This is essential knowledge for the Corporate and Business Law paper, particularly when advising on business formation and understanding when the courts will or won't recognise this separation. The lesson covers four main business structures and their practical implications. Sole traders and ordinary partnerships offer simplicity but expose owners to unlimited personal liability for business debts and negligence. Limited liability partnerships and companies provide liability protection by creating a separate legal entity, but require formal registration and ongoing compliance. You'll learn the key differences between these structures, including how taxation works differently (personal tax for partnerships versus corporation tax for companies), how ownership can be transferred (shares in companies versus invitation-only partnership), and the consequences of having a separate legal personality. A landmark case study—Salomon v Salomon & Co—demonstrates why corporate personality matters in practice. When a leather bootmaker incorporated his sole trader business but treated his assets as a loan rather than capital, creditors challenged whether he should be repaid before them. The House of Lords confirmed that once a company is properly incorporated, it is genuinely separate from its owners, so Salomon could recover his loan as a creditor. This principle, established in 1897, underpins modern company law and shows you why business structure choices have real legal and financial consequences. Finally, you'll examine when courts ignore separate personality and the practical trade-offs of incorporation. While companies offer perpetual succession, limited liability, and separation of ownership from management, they come with administrative burden, public disclosure requirements, and difficulty returning capital to shareholders. Understanding these pros and cons prepares you to give sound advice to clients weighing up how to structure their business.

Duration: 8m