Companies and financial accounting
Companies and financial accounting

Start this free course now. Just create an account and sign in. Enrol and complete the course for a free statement of participation or digital badge if available.

Free course

Companies and financial accounting

1.4.1 Separate legal personality

All companies have a separate legal personality. The first corporations were established because separate legal personality gives a corporation a life beyond that of its individual shareholders or members. Think, for example, of the City of London Corporation, which was established in the Middle Ages and, until 2006, used to be called the Corporation of London.

Implications of having a separate legal personality include:

  • Once incorporated, the company will continue until it is formally wound up.
  • Companies can enter into contracts, or sue and be sued in their own right.
  • The personal creditors of the company’s shareholders do not have a claim on the company’s assets.
  • The creditors of the company will be paid before the shareholders, because shareholders have a residual claim on the company’s assets.

Some consider a company a ‘legal fiction’ because it is not a natural person. As such, they regard the company as a legal tool for the shareholders to increase their wealth. The more successful and profitable the company, the larger the increase in the shareholders’ residual interest in the company will be.


Take your learning further

Making the decision to study can be a big step, which is why you'll want a trusted University. The Open University has 50 years’ experience delivering flexible learning and 170,000 students are studying with us right now. Take a look at all Open University courses.

If you are new to University-level study, we offer two introductory routes to our qualifications. You could either choose to start with an Access module, or a module which allows you to count your previous learning towards an Open University qualification. Read our guide on Where to take your learning next for more information.

Not ready for formal University study? Then browse over 1000 free courses on OpenLearn and sign up to our newsletter to hear about new free courses as they are released.

Every year, thousands of students decide to study with The Open University. With over 120 qualifications, we’ve got the right course for you.

Request an Open University prospectus371