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I hope you are in good health.
You said that in large companies directors are separate from their Management but you also said that in small companies directors are considered also the owners of the business because they could have bought the shares of the company which means they are among the owners of the company then are they considered separate from the management?
I have never said that about small companies because it is not true.
For all limited companies (whether large or small) the directors are employees of the company and are paid salaries by the company. They might well own shares in the company (again, whether it is a large or small company) and the shareholders are the owners of the company.
The separate entity concept really applies to sole traders where even though the owner owns the whole business, for accounting purposes we treat the business as being separate from he owner.
You are saying that directors of large or small companies are salaried employees of the company even though they might be owning the shares ownership in the business?
Is it also true that directors are part of the management who runs the business on daily basis are seperate from the owners who are shareholders – because if they own the shares in the company then they are actually among the shareholders – are not they?
Is it also true that to find out the fraud of the directors who also owns the shares should be scrutinized by veil of incorporation which means we have to deemed directors seperate from the management – and therefore considering business as separate legal entity from their directors?
Please also explain what is veil of incorporation and what does it mean by lifting it for what purpose?
That is not relevant for Paper FA (only for Paper LW, and so you should ask in the Paper LW Ask the Tutor Forum).
Could you please explain this.
You said in your previous reply that directors of large or small companies are salaried employees of the company even though they might be owning the shares ownership in the business?Is it also true that directors are part of the management who runs the business on daily basis are seperate from the owners who are shareholders – because if they own the shares in the company then they are actually among the shareholders – are not they?
Is it also true that to find out the fraud of the directors who also owns the shares should be scrutinized by veil of incorporation which means we have to deemed directors seperate from the management – and therefore considering business as separate legal entity from their directors?
Yes – whether the companies are large or small, the directors are part of the management and are therefore employees of the company and paid a salary. The same people might well be shareholders of the company and therefore owners of the company. They are the same people, but the roles are different.
As I wrote before, the veil of incorporation and fraud by directors is a legal issue and is examined in Paper LW and not in Paper FA.
Can we say that since directors are the owners or among the list of shareholders of the company then they are a separate legal entity. Because limited liability company is a separate legal entity which means shareholders are different from the management but directors here are the actual shareholders so can they or cannot they should be part of company’s decisions making in shareholders meeting?
Secondly how can the director decide their own pay as part of the shareholders voting for their own salaries, i don’t get this too!
All individuals are separate entities whether they are directors, customers, employees, shareholders or whatever. However this is not what the separate entity concept is about. The separate entity concept is simply that we treat the business as being separate from the owners for accounting purposes.
You are asking about legal issues that again are not relevant for Paper FA and you should ask in the Paper LW forum.
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