limited liability

When a legal entity is incorporated, the company or limited liability partnership takes on its own separate legal personality. It is the incorporated entity of the company (or LLP, as the case may be) which is the legal entity which enters into legal relationships, such as contracts for the sale of goods, acquiring services from other providers, selling services to others, licences of intellectual property and confidential information.

Limited liability stands in sharp contrast with unlimited liability of sole proprietors, partnerships and unincorporated associations. Directors also obtain the benefit of limited liability because the directors conduct the business of the company, and not their own business.

Shareholders

Shareholders in a company limited by shares and members of companies limited by guarantee also obtain the benefit of this “corporate veil”. Shareholders are liable for acts and omissions a company (ie any act which gives rise to legal liability) up to the par value of their shares.

Directors

Directors are also not personally liable for their success or failure of the business, provided that they observe and discharge their directors’ duties required of them under the Companies Act and general law.

Limits to ... Limited Liability

Personal Liability

This "corporate veil" of limited liability  thus shelters the members and directors of companies. There are ways to lift the corporate veil to obtain finding that the directors and/or shareholders are personally liable for the acts of companies and limited liability partnerships. They are limited in number and generally require dishonest or other unlawful conduct, such as participation in a common design. Relevant acts include participating as a joint tortfeasor in tortious conduct, such as infringing a third party’s intellectual property rights or converting goods of a third party for their own use. Claims are also able to be made by a company against its directors for failing to discharge their duties in their capacity of director.