CAT / FIA FFA Syllabus A. The Context And Purpose Of Financial Reporting - The legal differences - Notes ^{3 / 6}

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’s 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.