Separate Legal Entity – is it really “separate”?

Jan 9, 2016

You had probably heard of a “separate legal entity” – this is a legal term that identifies corporation as an entity with a “life” separate from its shareholders. A corporation may have its own debts, rights, obligations and even bear its own administrative and criminal responsibility. Corporation pays taxes separately from its shareholders and may file claims and complaints in its own name. In larger corporations, shareholders have no say and no power to make decisions relating to the most business decisions and resolutions.

But is it really separate? The answer is not simple, and though after its initial incorporation a corporation has its own life and existence; it is managed and operated by its officers and directors. The officers and directors of a corporation bear personal liability for their actions and for the actions of the corporation, even if they did not personally perform those actions. In some instances, directors and shareholders of a corporation will be personally liable for the debts and obligations of a corporation.

These rules of “transferred” liability become more relevant in small-medium size corporations, in which involvement of the directors and officers is more personal and thorough. Moreover, there is almost no separation between corporation in which shareholder, director and officer is the same person. Only a proper management of your corporate administration, records of decision-making, keeping Minute books up to date, and a proper documents’ management might create a separating “veil” between a corporation and its shareholders, directors and managers.

We at CBES will assist you in organizing your business, updating Minute books, preparing documentation and making sure that you manage the corporation as a really separate entity in order to avoid unnecessary personal burden of the corporate debts, liabilities and obligations.

Please contact us at CBES.ca for further assistance.

Launch Your Business in Canada

Contact us right now and we will help You!

Capital Cost Allowance (CCA)

Capital cost allowance (CCA) is one of several methods to lower your business's taxable income in Canada. The Canada Revenue Agency (CRA) describes it as "a tax deduction that Canadian tax laws allow a business to claim for the loss in value of capital assets due to...

Motor Vehicle Expense Claims on Income Tax in Canada

Did you use a vehicle for your business last tax year? This article outlines the motor vehicle expenses you can claim on your income tax in Canada and details the necessary documentation to support your expense claims. The examples provided here illustrate how to...

Canada Pension Plan (CPP)

The CPP, also known as the Canada Pension Plan, is a national program that aims to assist Canadians in securing income for their retirement or in the event of disability. It was instituted by Lester B. Pearson's Liberal government in 1965, except in Quebec where a...

Independent Contractor vs Employee in Canada

Understanding whether you are classified as an independent contractor or an employee is crucial for your Canadian income tax, especially if you believe you are a contractor but the Canada Revenue Agency (CRA) later decides otherwise after you have filed multiple tax...

Red Flags That Will Get Your Small Business a CRA Audit

Receiving a letter from the Canada Revenue Agency (CRA) announcing an audit is something every business or individual fears. Tax experts say about 35,000 such letters were issued in 2023. Business tax returns undergo intense scrutiny, and although there is no...

How to Manage Business Expense Records in Canada

Imagine if you were to create a comprehensive list of all the responsibilities necessary for running your business, and then arranged them according to your personal preference. Where would managing business expense records fall within that hierarchy? Would it be...