CONCEPT OF LEGAL PERSONALITY IN ZIMBABWE

DEFINITION OF LEGAL PERSONALITY

Legal personality refers to the ability of a person or

organization to have legal rights and duties within a
certain legal system123. It is a prerequisite to legal
capacity, which is the ability of any legal person to
amend rights and obligations1. Legal personality
grants a person or organization rights and
responsibilities under the law24. These rights include
the right to be free from unlawful interference, and
the rights to exist, persist and reproduce3.

Legal personality
1.To have legal personality means to be capable
of having legal rights and duties within a certain
legal system, such as to enter into contracts,
sue, and be sued. Legal personality is a
prerequisite to legal capacity, the ability of any
legal person to amend rights and obligations.
Legal persons are of two kinds: natural persons
– people – and judicial persons – groups of
 people, such as corporations, which are treated
by law as if they were persons. While people
acquire legal personhood when they are born,
judicial persons do so when they are
incorporated in accordance with law.

2.legal personality
Legal personality is the ability to enjoy rights and
be bound by obligations
To enter a contract, to Sue and be sued

3.legal personality
legal personality means that right ,duties and
ability to sue and be sued ensured by law or
statue of that country.if that is not ensured by
law is not considered as legal personality.
A' open a company but A'dont registred his company
according to law. that company dont have legal
personality.

Legal personality means that a person or entity has rights

and duties in law. These rights commonly include the
right to be free from unlawful interference, and the rights
to exist, persist and reproduce. Where the rights of a legal
 person or entity are breached, they have the right to seek
enforcement and a remedy through the legal system. The
most common example of an entity other than a natural
person having legal personality is that of a corporation.

Legal personality means any person, thing or entity that

can do things, that can undertake legal actions including
but not limited to entering into contracts, owning
property, capacity to xxx, capable of being sued etc.

THERE ARE TWO MAIN TYPES OF LEGAL

PERSONALITY:

1. Natural Persons: These are human beings who have

legal rights and obligations from birth. They can
enter into contracts, own property, sue and be sued,
and have other legal capacities.
2. Juridical Persons: Also known as artificial, legal, or
fictitious persons, these are entities created by law
and given certain legal rights and duties similar to
those of natural persons. Examples include
corporations, government agencies, and non-profit
organizations12.
CONCEPT OF LEGAL PERSONALITY

In Zimbabwe, the concept of legal personality is

fundamental to corporate law. Legal personality
refers to the ability of an entity to have rights and
responsibilities similar to those of a natural person.
This concept is crucial for understanding how
companies and other business entities operate
within the legal framework.

Key Points about Legal Personality in Zimbabwe:

1. Separate Legal Entity: A company is considered

a separate legal entity from its shareholders,
directors, and employees. This principle was
established in the landmark case of Salomon v
Salomon & Co Ltd (1897), which is also
recognized in Zimbabwean law1.
2. Corporate Veil: The “corporate veil” is a legal
concept that separates the actions and liabilities
 of a company from those of its shareholders and
directors. This means that the personal assets of
shareholders are protected from the company’s
liabilities1.
3. Perpetual Succession: Companies enjoy
perpetual succession, meaning they continue to
exist even if the shareholders or directors
change, retire, or pass away1.
4. Limitation of Liability: Shareholders’ liability for
the company’s debts is limited to the amount
unpaid on their shares. This protects personal
assets from being used to settle company
debts1.
5. Legal Capacity: Under the Companies and
Other Business Entities Act (Chapter 24:31), a
company has the capacity and powers of a
natural person of full legal capacity, as far as a
body corporate can have such capacity and
exercise such powers1.
6. Rights and Obligations: Both natural and

artificial persons (such as companies) have rights

and obligations under the law. This includes the
ability to sue and be sued in their own names 2.
 How legal personality affects liability

Legal personality significantly impacts liability in

several ways:
1. Natural Persons: Individuals are personally liable for
their actions. This means they can be sued and held
responsible for debts and obligations. For example, if
a person breaches a contract, they can be taken to
court and may have to pay damages from their
personal assets.
2. Juridical Persons: Entities like corporations have a
separate legal identity from their owners and
managers. This separation means that the
corporation itself is liable for its debts and
obligations, not the individual shareholders or
directors. This concept is known as “limited liability.”
For instance, if a corporation goes bankrupt, the
personal assets of its shareholders are generally
protected from creditors.
3. Piercing the Corporate Veil: In some cases, courts
may hold shareholders or directors personally liable
if they misuse the corporation for fraudulent or
illegal activities. This is known as “piercing the
corporate veil.
 Examples of piercing the corporate veil
Piercing the corporate veil is a legal concept where courts
set aside the limited liability of a corporation, holding its
shareholders or directors personally liable for the
corporation’s actions. Here are some common examples:
1. Fraud or Misrepresentation: If a corporation is used to
perpetrate fraud or deceive creditors, courts may pierce
the corporate veil. For instance, if a company transfers
assets to another entity to avoid paying debts, the court
may hold the owners personally liable1.
2. Undercapitalization: When a corporation is inadequately
funded from the start, making it unable to meet its
liabilities, courts may pierce the veil. This often indicates
that the corporation was not intended to operate as a
separate entity2.
3. Commingling of Assets: If personal and corporate assets
are mixed, such as using corporate funds for personal
expenses, it can lead to piercing the veil. This shows a
lack of respect for the corporation’s separate legal
identity3.
4. Failure to Follow Corporate Formalities: Not adhering
to corporate formalities, like holding regular meetings or
maintaining proper records, can result in piercing the
veil. This suggests that the corporation is merely an alter
ego of its owners3.
5. Alter Ego Theory: When a corporation is merely a
facade for the personal dealings of its owners, courts may
pierce the veil. This is often seen when the corporation is
used to shield personal assets from liabilities2.

HOW CAN BUSINESSES PREVENT PIERCING

THE CORPORATE VEIL
Businesses can take several steps to prevent piercing the
corporate veil and maintain their limited liability
protection:
1. Maintain Adequate Capitalization: Ensure the business
is sufficiently funded to meet its liabilities. This
demonstrates that the corporation is a legitimate entity
capable of operating independently.
2. Separate Personal and Business Finances: Keep
personal and corporate assets distinct. Use separate bank
accounts and avoid using corporate funds for personal
expenses.
3. Follow Corporate Formalities: Adhere to all legal
requirements, such as holding regular board meetings,
keeping detailed minutes, and maintaining proper records.
This shows respect for the corporation’s separate legal
identity.
4. Proper Documentation: Document all business
transactions accurately and thoroughly. This includes
 contracts, financial statements, and other important
documents.
5. Transparent Operations: Operate the business
transparently and ethically. Avoid any actions that could
be perceived as fraudulent or deceptive.
6. Use Appropriate Titles: Ensure that all business dealings
are conducted in the name of the corporation, not in the
personal names of the owners or directors.
7. Insurance: Obtain adequate insurance to cover potential
liabilities. This can help protect the corporation’s assets
and demonstrate responsible management.
8. Legal Compliance: Comply with all relevant laws and
regulations. This includes tax laws, employment laws, and
industry-specific regulations.
By following these practices, businesses can strengthen
their legal standing and reduce the risk of piercing the
corporate veil.

CONSEQUENCES OF PIERCING THE CORPORATE

VEIL

Piercing the corporate veil can have significant

consequences for the individuals involved. Here are some
key outcomes:
1. Personal Liability: Shareholders, directors, or officers
may be held personally liable for the corporation’s debts
and obligations. This means their personal assets, such as
 homes and savings, could be at risk to satisfy corporate
liabilities.
2. Loss of Limited Liability Protection: One of the main
advantages of forming a corporation is the limited liability
protection it offers. Piercing the corporate veil removes
this protection, exposing individuals to personal financial
risk.
3. Damage to Reputation: Being involved in a case where
the corporate veil is pierced can harm the reputation of the
individuals and the business. It may signal to potential
investors, partners, and customers that the business is not
managed properly or ethically.
4. Legal and Financial Consequences: Individuals may
face legal penalties, fines, and the costs associated with
defending against lawsuits. This can be financially
draining and time-consuming.
5. Impact on Business Operations: The business itself may
suffer from the fallout, including loss of trust from
stakeholders, potential bankruptcy, and difficulties in
securing future financing or partnerships.
6. Increased Scrutiny: Once the corporate veil is pierced,
the business and its owners may face increased scrutiny
from regulators, creditors, and other stakeholders, leading
to more stringent oversight and compliance requirements.
Businesses can take several steps to
prevent piercing the corporate veil and
maintain their limited liability protection:
1. Maintain Adequate Capitalization:
Ensure the business is sufficiently funded
to meet its liabilities. This demonstrates
that the corporation is a legitimate entity
capable of operating independently.
2. Separate Personal and Business
Finances: Keep personal and corporate
assets distinct. Use separate bank
accounts and avoid using corporate funds
for personal expenses.
3. Follow Corporate Formalities: Adhere
to all legal requirements, such as holding
regular board meetings, keeping detailed
minutes, and maintaining proper records.
This shows respect for the corporation’s
separate legal identity.
4. Proper Documentation: Document all
business transactions accurately and
thoroughly. This includes contracts,
financial statements, and other important
documents.
5. Transparent Operations: Operate the
business transparently and ethically.
 Avoid any actions that could be perceived
as fraudulent or deceptive.
6. Use Appropriate Titles: Ensure that all
business dealings are conducted in the
name of the corporation, not in the
personal names of the owners or
directors.
7. Insurance: Obtain adequate insurance
to cover potential liabilities. This can help
protect the corporation’s assets and
demonstrate responsible management.
8. Legal Compliance: Comply with all
relevant laws and regulations. This
includes tax laws, employment laws, and
industry-specific regulations.
By following these practices, businesses
can strengthen their legal standing and
reduce the risk of piercing the corporate
veil.
 Limited liability protection is a key feature of
corporations and other business entities like limited
liability companies (LLCs). Here’s a closer look at
what it entails:

Key Features of Limited Liability Protection

1. Separation of Personal and Business Assets: Limited

liability ensures that the personal assets of shareholders or
members (such as homes, cars, and personal savings) are
protected from the business’s debts and liabilities. Only
the assets invested in the business are at risk.
2. Risk Mitigation: This protection encourages
entrepreneurship by allowing individuals to invest in and
start businesses without risking their personal wealth
beyond their investment in the company.
3. Legal Shield: In the event of legal action against the
business, creditors can only pursue the business’s assets,
not the personal assets of its owners. This legal shield is
crucial for managing financial risk.
How It Works
 Corporations: In a corporation, shareholders are only
liable up to the amount they have invested in the
company. If the corporation incurs debt or faces a lawsuit,
shareholders’ personal assets are generally not at risk.
 Limited Liability Companies (LLCs): Similar to
corporations, LLC members enjoy limited liability
protection. Their personal assets are protected from the
LLC’s liabilities, and they are only liable up to their
investment in the LLC.
Benefits
 Encourages Investment: Investors are more likely to
invest in a business if they know their personal assets are
protected.
 Attracts Talent: Limited liability can attract skilled
professionals who might be hesitant to join a business if
they risk personal liability.
 Facilitates Growth: Businesses can take on more risks
and pursue growth opportunities without exposing owners
to personal financial ruin.
Limitations and Exceptions
 Personal Guarantees: Sometimes, lenders may require
personal guarantees from business owners, which can
bypass limited liability protection.
 Piercing the Corporate Veil: As discussed earlier, courts
can pierce the corporate veil in cases of fraud,
undercapitalization, or failure to follow corporate
formalities, exposing owners to personal liability.
 Professional Liability: Certain professionals (e.g.,
lawyers, doctors) may still be personally liable for
malpractice or professional negligence, even if they
operate through a corporation or LLC.