Legal Personality

Lecture series
Department of Mercantile Law

Corporate law Group
Legal personality
Legal personality
Important terms
• To be acknowledged in law as a
Legal personality
person or bearer of rights and
liabilities
Incorporation • Formation of a company through

registration with the CIPC
• A process where a company’s

Lifting or piercing of the
separate legal personality is ignored
corporate veil when abused to hold the person
inside the company responsible
Legal personality
Practical implications
• In practice separate legal personality means that the

participants (members or shareholders) in the company’s
liability is limited.
• The company can acquire its own rights and duties separate
from its shareholders. Shareholders are not liable for the
company’s debts
• The company enters into contracts in its own name and can sue
and be sued.
Legal personality
General matters
When branches and divisions of a company are

Branches and divisions not registered entities, but merely operate
separately for practical convenience, these
branches and division do not for purposes of
law have their own separate legal existence.
Section 1 of the Companies Act includes trusts,

Trusts and partnerships however, trusts are not usually acknowledged
as juristic persons. Trusts only enjoy one
benefit associated with legal personality –
limited liability.
Legal personality
Disregarding separate juristic personality
Exclusion of liability of persons inside business enterprises is not

an absolute right. In special circumstances the separation
between the company and its controllers can be ignored. This is
to avoid the abuse of the separate legal personality of
companies.
This can be accomplished in two ways:
o The common-law principle (piercing or lifting the corporate veil).
o Statutorily - section 20(9) of the Companies Act for companies, and
section 65 of the Close Corporations Act for close corporations.
Legal personality
Common-law lifting or piercing the corporate veil
• Courts will not allow the abuse of the separate legal personality to justify
wrongs, to conceal fraud, or to defend or hide crime. In these
circumstances the courts may pierce or lift the corporate veil and hold the
directors or other persons liable for acts committed in the name of the
company. For instance, Botha v Van Niekerk.
• However, courts are reluctant to lift the veil as this ignores the important
concept of separate legal personality and the consequences attached
thereto.
• Under the common law courts do not have a general discretion to hold
individuals personally liable.
Legal personality
Statutory lifting of the corporate veil
• Section 20(9) of the Companies Act codifies the general principle of lifting
the corporate veil. The wording of section 20(9) of the Companies Act is
similar to that of section 65 of the Close Corporations Act.
• The first judgment under section 20(9) of the Companies Act was that of
Ex Parte Gore where the court dealt with a group of companies run as a
single entity.
• Note that section 20(9) does not replace or abolish the common-law lifting
of the veil. However, courts are reluctant to lift the veil as this ignores the
important concept of separate legal personality and the consequences
attached thereto.
Legal personality
Example of question
Question
John, the managing director of Limpopo Quarry Works Ltd, the holding company of a group of
companies, deals with company business and finance within the group as if it is a single company.
Thabo, a director of one of the subsidiaries of Limpopo Quarry Works Ltd approaches you for
advice as he is concerned about John’s conduct and consults you for legal advice on a possible
remedy under the Companies Act 71 of 2008. (10 marks)
Answer
Your answer should refer to and discuss the following aspects in detail:
• The principle of separate legal personality of companies
• The exception to this principle, the lifting of the corporate veil
• The circumstances when this remedy will be available
• This principle originated under the common law, but now section 20(9) deals with the statutory version
• The basic provision/s of the section/s
• Refer to the judgment of Ex Parte Gore and discuss the reasons for the court’s decision.
Legal personality
Reflection
• Legal personality, which is acquired on registration of a company,

entails various rights and privileges.
• There are special circumstances under which the separate legal

personality of companies will be disregarded, and the corporate veil will
be lifted by courts to prevent an injustice. For instance, in cases of
fraudulent, dishonest or improper conduct.
• The lifting of the corporate veil can be effected either under the
common law, under section 20(9) of the Companies Act 71 of 2008, or
in terms of section 65 of the Close Corporations Act, respectively.
Legal personality
General information
• Note that these lectures are not intended to

substitute the study guide in the module and
cannot be used to prepare for the examination.
These lectures highlight and explain certain
aspects of a learning unit.
• Students who have questions on the content of a
learning unit should contact module lecturers by
e-mail with specific questions or enquiries.
• Remember to consult the prescribed textbook, if
applicable, in addition to your study guide when
preparing for the assignments and the
examination.

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Lecture series

Department of Mercantile Law

Incorporation • Formation of a company through

• A process where a company’s

• In practice separate legal personality means that the

When branches and divisions of a company are

Section 1 of the Companies Act includes trusts,

Exclusion of liability of persons inside business enterprises is not

• Legal personality, which is acquired on registration of a company,

• There are special circumstances under which the separate legal

• Note that these lectures are not intended to

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