Legal personality

What it means

Legal personality is the capacity to have rights and obligations: to own property, enter into contracts, sue and be sued. A human being has it from birth until death. A legal entity acquires it when it comes into existence, which for commercial companies is tied to entry in the commercial register.

Legal personality must be distinguished from legal capacity, the ability to acquire rights and incur obligations through one's own acts. An individual usually gains full capacity on reaching majority. A legal entity acts through its bodies, above all its statutory body.

A company's legal personality is separate from that of its members. The company owns its assets and is liable for its debts, while members of an s. r. o. are generally not personally liable for them. That separation is precisely why entrepreneurs set up commercial companies.

How it works in practice

In company formation it matters that the company comes into existence only on the day of its entry in the commercial register. Between signing the articles and registration there is a company in formation, and the people who act on its behalf are liable for those acts until the company adopts them after it exists.

A branch has no legal personality of its own. The founding company acts for it and the branch's obligations are the company's obligations. The same applies to a sole trader's premises, which are merely a place of business, not a separate entity.

Legal personality ends with deletion from the commercial register, preceded by liquidation or bankruptcy, or by a merger or division with a legal successor. Once deleted, the company can no longer enter into contracts or be party to proceedings.

What to watch out for

A contract made in a company's name before it exists or after it has ceased may be invalid or may bind the signatory personally. When dealing with a new company, check its register entry; with one being wound up, check whether it still has legal personality and who acts for it.

The separation is not absolute. Where a company is abused, for instance to strip assets to the detriment of creditors, courts can pierce the protection and hold members or directors liable. A director's liability for breaching their duties also remains personal.