FAF3
Syllabus A. The Context And Purpose Of Financial Reporting A1. The Scope and Purpose of, Financial Statements

A1c. The legal differences 3 / 5

Syllabus A1c)

Recognise the legal differences between a sole trader, partnership and a limited liability company.

Separate legal entity

  • Sole traders and partnerships are not separate entities from their owners.  

    A partnership ceases and a new one starts whenever a partner joins or leaves the partnership.

  • A limited liability company has a separate legal identity from its shareholders. 

    In fact, it can issue contracts in the company‚Äôs name.  

    It continues to exist regardless of the identity of its owners.

Business transactions must always be kept separate from personal transactions regardless of whether or not the business is a separate legal entity.