PasSQE
SQE2 · Business Organisations, Rules and ProceduresTOPIC 2 OF 7Legal personality and limited liability · SRA syllabus, Annex 1

Legal Personality & Limited Liability

Law stated as at 25 July 2026
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Learning goals · what SQE2 expects from you here
  • Explain separate legal personality and its consequences: the company owns its own assets, owes its own debts, makes its own contracts, sues and is sued in its own name, and outlives its members.
  • State precisely whose liability limited liability limits, and what that liability is capped at.
  • Know the one narrow situation in which the corporate veil can be pierced, and why the answer is almost always that it cannot be.
  • Apply all of it to the exam's standard scenario: a company has failed owing money, and a client asks who can actually be made to pay, or whose assets can be reached.
Watch for: treating separate legal personality and limited liability as one idea. They are two, and blurring them is this topic's classic mark-loser.
The foundation

Separate legal personality: the company as its own person

A company incorporated under the Companies Act 2006 is a legal person distinct from the people who own and run it. Everything else in this topic follows from that one fact.

Salomon v A Salomon & Co Ltd fixed it in English law. Mr Salomon incorporated his boot-and-leather business, sold it to the new company, and kept nearly all the shares. When the company failed, the liquidator argued it was a sham, really just Salomon trading under a different name, so he should pay its debts personally. The House of Lords rejected that: the company is at law a different person altogether from the subscribers to the memorandum.

Motive is irrelevant: a person can incorporate specifically to obtain limited liability, hold almost every share themselves, and the company is still validly and fully a separate person.

The four consequences SQE2 actually tests
  • PropertyThe company owns its own. Members own shares, not a slice of what the company owns: even a sole controlling shareholder has no legal or equitable interest in any item of company property.
  • DebtsIts debts and contracts belong to the company, not its shareholders, and not its directors.
  • LitigationThe company sues and is sued in its own name.
  • SuccessionThe company has perpetual succession: it survives the death, bankruptcy or share sale of any member or director, until it is formally dissolved.

So when a scenario says "the sole director died" or "a shareholder sold up", the company's assets, debts and contracts are untouched. That is separate personality doing its job.