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.

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