The capacity of both natural

Natural person

Variously, in jurisprudence, a natural person is a human being, as opposed to an artificial, legal or juristic person, i.e., an organization that the law treats for some purposes as if it were a person distinct from its members or owner...

 and legal persons determines whether they may make binding amendments to their right

Right

Rights are legal, social, or ethical principles of freedom or entitlement; that is, rights are the fundamental normative rules about what is allowed of people or owed to people, according to some legal system, social convention, or ethical theory...

s, duties

Duty

Duty is a term that conveys a sense of moral commitment to someone or something. The moral commitment is the sort that results in action and it is not a matter of passive feeling or mere recognition...

 and obligation

Obligation

An obligation is a requirement to take some course of action, whether legal or moral. There are also obligations in other normative contexts, such as obligations of etiquette, social obligations, and possibly...

s, such as getting married

Marriage

Marriage is a social union or legal contract between people that creates kinship. It is an institution in which interpersonal relationships, usually intimate and sexual, are acknowledged in a variety of ways, depending on the culture or subculture in which it is found...

 or merging

Mergers and acquisitions

Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...

, entering into contract

Contract

A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

s, making gifts

Gift (law)

A gift, in the law of property, is the voluntary transfer of property from one person to another without full valuable consideration...

, or writing a valid will

Will (law)

A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his/her estate and provides for the transfer of his/her property at death...

. Capacity is an aspect of status

Status (law)

A person's status is a set of social conditions or relationships created and vested in an individual by an act of law rather than by the consensual acts of the parties, and it is in rem, i.e. these conditions must be recognised by the world. It is the qualities of universality and permanence that...

 and both are defined by a person's personal law:

• for natural persons, the law of domicile
  Domicile (law)
  In law, domicile is the status or attribution of being a permanent resident in a particular jurisdiction. A person can remain domiciled in a jurisdiction even after they have left it, if they have maintained sufficient links with that jurisdiction or have not displayed an intention to leave...
  
   or lex domicilii
  Lex domicilii
  The lex domicilii is the Latin term for "law of the domicile" in the conflict of laws. Conflict is the branch of public law regulating all lawsuits involving a "foreign" law element where a difference in result will occur depending on which laws are applied....
  
  in common law
  Common law
  Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
  
   jurisdictions, and either the law of nationality
  Nationality
  Nationality is membership of a nation or sovereign state, usually determined by their citizenship, but sometimes by ethnicity or place of residence, or based on their sense of national identity....
  
   or lex patriae
  Lex patriae
  The term lex patriae is Latin for the law of nationality in the conflict of laws which is the system of public law applied to any lawsuit where there is a choice to be made between several possibly relevant laws and a different result will be achieved depending on which law is...
  
  , or of habitual residence
  Habitual residence
  In conflict of laws, habitual residence is the standard used to determine the law which should be applied to determine a given legal dispute. It can be contrasted with the law on domicile, traditionally used in common law jurisdictions to do the same thing....
  
   in civil law
  Civil law (legal system)
  Civil law is a legal system inspired by Roman law and whose primary feature is that laws are codified into collections, as compared to common law systems that gives great precedential weight to common law on the principle that it is unfair to treat similar facts differently on different...
  
   states;
• for legal persons, the law of the place of incorporation
  Incorporation (business)
  Incorporation is the forming of a new corporation . The corporation may be a business, a non-profit organisation, sports club, or a government of a new city or town...
  
  , the lex incorporationis for companies while other forms of business entity derive their capacity either from the law of the place in which they were formed or the laws of the states in which they establish a presence for trading purposes depending on the nature of the entity and the transactions entered into.

When the law

Law

Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...

 limits or bars a person from engaging in specified activities, any agreements

Contract

A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

 or contract

Contract

A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

s to do so are either voidable or void for incapacity. Sometimes such legal incapacity is referred to as incompetence. For comparison, see Competence (law)

Competence (law)

In American law, competence concerns the mental capacity of an individual to participate in legal proceedings. Defendants that do not possess sufficient "competence" are usually excluded from criminal prosecution, while witnesses found not to possess requisite competence cannot testify...

.

Discussion

As an aspect of the social contract

Social contract

The social contract is an intellectual device intended to explain the appropriate relationship between individuals and their governments. Social contract arguments assert that individuals unite into political societies by a process of mutual consent, agreeing to abide by common rules and accept...

 between a state and its citizens, the state adopts a role of protector to the weaker and more vulnerable members of society. In public policy

Public policy (law)

In private international law, the public policy doctrine or ordre public concerns the body of principles that underpin the operation of legal systems in each state. This addresses the social, moral and economic values that tie a society together: values that vary in different cultures and change...

 terms, this is the policy of parens patriae

Parens patriae

Parens patriae is Latin for "parent of the nation." In law, it refers to the public policy power of the state to intervene against an abusive or negligent parent, legal guardian or informal caretaker, and to act as the parent of any child or individual who is in need of protection...

. Similarly, the state has a direct social and economic interest in promoting trade, so it will define the forms of business enterprise that may operate within its territory, and lay down rules that will allow both the businesses and those that wish to contract with them a fair opportunity to gain value. This system worked well until social and commercial mobility increased. Now persons routinely trade and travel across state boundaries (both physically and electronically), so the need is to provide stability across state lines given that laws differ from one state to the next. Thus, once defined by the personal law, persons take their capacity with them like a passport whether or however they may travel. In this way, a person will not gain or lose capacity depending on the accident of the local laws, e.g. if A does not have capacity to marry her cousin under her personal law (a rule of consanguinity

Consanguinity

Consanguinity refers to the property of being from the same kinship as another person. In that respect, consanguinity is the quality of being descended from the same ancestor as another person...

), she cannot evade

Evasion (law)

In law, the Doctrine of Evasion is a fundamental public policy. Whereas a person may legitimately plan his or her affairs so as to avoid the incidence of obligations or liabilities imposed by the law, no-one is allowed to evade the operation of otherwise mandatory provisions once duties and...

 that law by travelling to a state that does permit such a marriage (see nullity

Nullity (conflict)

In conflict of laws, the issue of nullity in Family Law inspires a wide response among the laws of different states as to the circumstances in which a marriage will be valid, invalid or null...

). In Saskatchewan Canada, an exception to this law allows married persons to become the common law spouse spouse of other(s) prior to divorcing the first spouse. This law is not honored amongst other Canadian provinces.

Natural persons

Standardized classes of person have had their freedom restricted. These limitations are justified exceptions to the general policy of freedom of contract

Freedom of contract

Freedom of contract is the freedom of individuals and corporations to form contracts without government restrictions. This is opposed to government restrictions such as minimum wage, competition law, or price fixing...

 and the detailed human

Human rights

Human rights are "commonly understood as inalienable fundamental rights to which a person is inherently entitled simply because she or he is a human being." Human rights are thus conceived as universal and egalitarian . These rights may exist as natural rights or as legal rights, in both national...

 and civil rights

Civil rights

Civil and political rights are a class of rights that protect individuals' freedom from unwarranted infringement by governments and private organizations, and ensure one's ability to participate in the civil and political life of the state without discrimination or repression.Civil rights include...

 that a person of ordinary capacity might enjoy. Hence, for example, freedom of movement may be modified, the right to vote may be withdrawn, etc. As societies have developed more equal treatment based on gender, race and ethnicity, many of the older incapacities have been removed. For example, English law

English law

English law is the legal system of England and Wales, and is the basis of common law legal systems used in most Commonwealth countries and the United States except Louisiana...

 used to treat married women as lacking the capacity to own property or act independently of their husbands (the last of these rules was repealed by the Domicile and Matrimonial Proceedings Act 1973, which removed the wife's domicile of dependency for those marrying after 1974, so that a husband and wife could have different domiciles).

• Infancy
  Minor (law)
  In law, a minor is a person under a certain age — the age of majority — which legally demarcates childhood from adulthood; the age depends upon jurisdiction and application, but is typically 18...
  
  

The definition of an infant or minor varies, each state reflecting local culture

Culture

Culture is a term that has many different inter-related meanings. For example, in 1952, Alfred Kroeber and Clyde Kluckhohn compiled a list of 164 definitions of "culture" in Culture: A Critical Review of Concepts and Definitions...

 and prejudice

Prejudice

Prejudice is making a judgment or assumption about someone or something before having enough knowledge to be able to do so with guaranteed accuracy, or "judging a book by its cover"...

s in defining the age of majority

Age of majority

The age of majority is the threshold of adulthood as it is conceptualized in law. It is the chronological moment when minors cease to legally be considered children and assume control over their persons, actions, and decisions, thereby terminating the legal control and legal responsibilities of...

, marriageable age

Marriageable age

Marriageable age is the age at which a person is allowed to marry, either as of right or subject to parental or other forms of consent. The age and other requirements vary between countries, but generally it is set at 18, although most jurisdictions allow marriage at slightly younger ages with...

, voting age

Voting age

A voting age is a minimum age established by law that a person must attain to be eligible to vote in a public election.The vast majority of countries in the world have established a voting age. Most governments consider that those of any age lower than the chosen threshold lack the necessary...

, etc. In many jurisdictions, legal contract

Contract

A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

s, in which (at least) one of the contracting parties is a minor, are voidable by the minor. For a minor to undergo medical procedure

Medical procedure

A medical procedure is a course of action intended to achieve a result in the care of persons with health problems.A medical procedure with the intention of determining, measuring or diagnosing a patient condition or parameter is also called a medical test...

, consent

Consent

Consent refers to the provision of approval or agreement, particularly and especially after thoughtful consideration.- Types of consent :*Implied consent is a controversial form of consent which is not expressly granted by a person, but rather inferred from a person's actions and the facts and...

 is determined by the minor's parent(s) or legal guardian

Legal guardian

A legal guardian is a person who has the legal authority to care for the personal and property interests of another person, called a ward. Usually, a person has the status of guardian because the ward is incapable of caring for his or her own interests due to infancy, incapacity, or disability...

(s). The right to vote in the United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 is currently set at 18 years, while the right to buy and consume alcohol

Alcohol

In chemistry, an alcohol is an organic compound in which the hydroxy functional group is bound to a carbon atom. In particular, this carbon center should be saturated, having single bonds to three other atoms....

 is often set at 21 years by U.S. state law

State law

In the United States, state law is the law of each separate U.S. state, as passed by the state legislature and adjudicated by state courts. It exists in parallel, and sometimes in conflict with, United States federal law. These disputes are often resolved by the federal courts.-See also:*List of U.S...

. Some laws, such as marriage laws, may differentiate between the sexes and allow women to marry younger. There are instances in which a person may be able to gain capacity earlier than the prescribed time through a process of emancipation

Emancipation of minors

An emancipated minor is a minor who is allowed to conduct a business or any other occupation on their own behalf or for their own account outside the influence of a parent or guardian. The minor will then have full contractual capacity to conclude contract with regard to the business. Whether...

. Conversely, many states allow the inexperience of childhood to be an excusing condition to criminal liability and set the age of criminal responsibility to match the local experience of emerging behavioral problems (see doli incapax). For sexual crimes, the age of consent

Age of consent

While the phrase age of consent typically does not appear in legal statutes, when used in relation to sexual activity, the age of consent is the minimum age at which a person is considered to be legally competent to consent to sexual acts. The European Union calls it the legal age for sexual...

 determines the potential liability of adult

Adult

An adult is a human being or living organism that is of relatively mature age, typically associated with sexual maturity and the attainment of reproductive age....

 accused.

As an example of liability in contract, the law in most of Canada provides that an infant is not bound by the contracts he or she enters into except for the purchase of necessaries and for beneficial contracts of service. Infants must pay fair price only for necessary goods and services. However, the British Columbia

British Columbia

British Columbia is the westernmost of Canada's provinces and is known for its natural beauty, as reflected in its Latin motto, Splendor sine occasu . Its name was chosen by Queen Victoria in 1858...

 Infants Act (RSBC 1996 c.223) declares all contracts, including necessities and beneficial contracts of service, are unenforceable against an infant. Only student loans and other contracts made specifically enforceable by statute will be binding on infants in that province.

In contracts between an adult and an infant, adults are bound but infants may escape contracts at their option (i.e. the contract is voidable). Infants may ratify a contract on reaching age of majority. In the case of executed contracts, when the infant has obtained some benefit under the contract, he/she cannot avoid obligations unless what was obtained was of no value. Upon repudiation of a contract, either party can apply to the court. The court may order restitution, damages, or discharge the contract. All contracts involving the transfer of real estate are considered valid until ruled otherwise.

• Minor
  Minor (law)
  In law, a minor is a person under a certain age — the age of majority — which legally demarcates childhood from adulthood; the age depends upon jurisdiction and application, but is typically 18...
  
  s and Contractual Capacity

A minor (typically under 18) can disaffirm a contract made, no matter the case. However, the entire contract must be disaffirmed. Depending on the jurisdiction, the minor may be required to return any of the goods still in his possession. Also, barter

Barter

Barter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. It is usually bilateral, but may be multilateral, and usually exists parallel to monetary systems in most developed countries, though to a...

 transactions such as purchasing a retail

Retail

Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be...

 item in exchange for a cash payment are generally recognized through a legal fiction

Legal fiction

A legal fiction is a fact assumed or created by courts which is then used in order to apply a legal rule which was not necessarily designed to be used in that way...

 not to be contracts due to the absence of promises of future action. A minor may not disavow such a trade.

Disaffirmance - it must be timely. For example, a contract that goes beyond two years of reaching the age of majority would be considered ratified. Minors are still allowed to disaffirm, even if their age is misrepresented. They will not face tort violations. Some states don't allow disaffirmance if the consideration cannot be returned.

Obligations - most states hold that a minor only must return the goods (consideration) if the goods are still in the minor’s possession. Many states are requiring that the minor restore the adult (other party) to the state they were in before the contract was made. Minors are beginning to be held responsible for damages, wear, tear, etc. of the good in question upon return. A suit for tort is considered by some states to be an enforcement of the contract and is not allowed.

Liability - for necessities, (1) the item contracted for must be necessary for minor’s existence, (2) the value must be up to that of the current standard of living or financial/social status (not excessive in value), (3) the minor must not be under the care of a parent/guardian who is required to supply the item. A minor could be held liable for a contract for the purchase of luxury items (those that are not in the financial/social/standard of living range).

Ratification - accepting and giving legal force to an obligation. Express ratification (for a minor) is expressly stating, orally or in writing that he/she intends to be bound by the contract. Implied ratification is when the conduct of the minor is inconsistent with that of disaffirmance or when minor fails to disaffirm an executed contract within a reasonable period.

Generally, the courts base their determination on whether the minor, after reaching the age of majority, has had ample opportunity to consider the nature of the contractual obligations he or she entered into as a minor and the extent to which the adult party to the contract has performed.

As one court put it, "the purpose of the infancy doctrine is to protect 'minors from foolishly squandering their wealth through improvident contracts with crafty adults who would take advantage of them in the marketplace.'"

• Insanity
  Insanity
  Insanity, craziness or madness is a spectrum of behaviors characterized by certain abnormal mental or behavioral patterns. Insanity may manifest as violations of societal norms, including becoming a danger to themselves and others, though not all such acts are considered insanity...
  
  , mental illness, or mental/medical condition

Individuals may have an inherent physical condition which prevents them from achieving the normal levels of performance expected from persons of comparable age, or their inability to match current levels of performance may be caused by contracting an illness. Whatever the cause, if the resulting condition is such that individuals cannot care for themselves, or may act in ways that are against their interests, those persons are vulnerable through dependency and require the protection of the state against the risks of abuse or exploitation. Hence, any agreements that were made are voidable, and a court may declare that person a ward of the state and grant power of attorney

Power of attorney

A power of attorney or letter of attorney is a written authorization to represent or act on another's behalf in private affairs, business, or some other legal matter...

 to an appointed legal guardian

Legal guardian

A legal guardian is a person who has the legal authority to care for the personal and property interests of another person, called a ward. Usually, a person has the status of guardian because the ward is incapable of caring for his or her own interests due to infancy, incapacity, or disability...

.

In England and Wales, this is a specific function of the Court of Protection

Court of Protection

The Court of Protection in English law is a superior court of record created under the Mental Capacity Act 2005. It has jurisdiction over the property, financial affairs and personal welfare of people who lack mental capacity to make decisions for themselves...

, and all matters concerning persons who have lost, or expect soon to lose, mental capacity are regulated under the Mental Capacity Act 2005

Mental Capacity Act 2005

The Mental Capacity Act 2005 is an Act of the Parliament of the United Kingdom. Its primary purpose is to provide a legal framework for acting and making decisions on behalf of adults who lack the capacity to make particular decisions for themselves....

. This makes provision for lasting powers of attorney

Lasting Power of Attorney

Lasting powers of attorney in England and Wales were created under the Mental Capacity Act 2005 of which copies are available online, and came into effect on 1 October 2007. The LPA replaced the former Enduring Powers of Attorney which were narrower in scope...

 under which decisions about the health, welfare and financial assets of a person who has lost capacity may be dealt with in that person's interests.

This sort of problem sometimes arises when people suffer some form of medical problem such as unconsciousness, coma

Coma

In medicine, a coma is a state of unconsciousness, lasting more than 6 hours in which a person cannot be awakened, fails to respond normally to painful stimuli, light or sound, lacks a normal sleep-wake cycle and does not initiate voluntary actions. A person in a state of coma is described as...

, extensive paralysis

Paralysis

Paralysis is loss of muscle function for one or more muscles. Paralysis can be accompanied by a loss of feeling in the affected area if there is sensory damage as well as motor. A study conducted by the Christopher & Dana Reeve Foundation, suggests that about 1 in 50 people have been diagnosed...

, or delirious states, from accidents or illnesses such as stroke

Stroke

A stroke, previously known medically as a cerebrovascular accident , is the rapidly developing loss of brain function due to disturbance in the blood supply to the brain. This can be due to ischemia caused by blockage , or a hemorrhage...

s, or often when older people become afflicted with some form of medical/mental disability

Disability

A disability may be physical, cognitive, mental, sensory, emotional, developmental or some combination of these.Many people would rather be referred to as a person with a disability instead of handicapped...

 such as Huntington's disease

Huntington's disease

Huntington's disease, chorea, or disorder , is a neurodegenerative genetic disorder that affects muscle coordination and leads to cognitive decline and dementia. It typically becomes noticeable in middle age. HD is the most common genetic cause of abnormal involuntary writhing movements called chorea...

, Alzheimer's disease

Alzheimer's disease

Alzheimer's disease also known in medical literature as Alzheimer disease is the most common form of dementia. There is no cure for the disease, which worsens as it progresses, and eventually leads to death...

, Lewy body

Lewy body

Lewy bodies are abnormal aggregates of protein that develop inside nerve cells in Parkinson's disease , Lewy Body Dementia and some other disorders. They are identified under the microscope when histology is performed on the brain....

 disease, or similar dementia. Such persons are often unable to consent to medical treatment and otherwise handle their financial and other personal matters. If the afflicted person has prepared documents beforehand about what to do in such cases, often in a revocable living trust

Trust law

In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...

 or related documents, then the named legal guardian may be able to take over their financial and other affairs. If the afflicted person owns his/her property jointly with a spouse or other able person, the able person may be able to take over many of the routine financial affairs. Otherwise, it is often necessary to petition a court, such as a probate court, that the afflicted person lacks legal capacity and allow a legal guardian to take over their financial and personal affairs. Procedures and court review have been established, dependent on the area of jurisdiction, to prevent exploitation of the incapacitated person by the guardian. The guardian periodically provides a financial accounting for court review.

In the Criminal Law

Criminal law

Criminal law, is the body of law that relates to crime. It might be defined as the body of rules that defines conduct that is not allowed because it is held to threaten, harm or endanger the safety and welfare of people, and that sets out the punishment to be imposed on people who do not obey...

, the traditional common law M'Naghten Rules

M'Naghten Rules

The M'Naghten rules were a reaction to the acquittal of Daniel McNaughton. They arise from the attempted assassination of the British Prime Minister, Robert Peel, in 1843 by Daniel M'Naghten. In fact, M'Naghten fired a pistol at the back of Peel's secretary, Edward Drummond, who died five days later...

 excuse

Excuse

In jurisprudence, an excuse or justification is a defense to criminal charges that is distinct from an exculpation. In this context, "to excuse" means to grant or obtain an exemption for a group of persons sharing a common characteristic from a potential liability. "To justify" as in justifiable...

d all persons from liability if they did not understand what they were doing or, if they did, that they did not know it was wrong. The consequences of this excuse were that those accused were detained indefinitely or until the medical authorities certified that it was safe to release them back into the community. This consequence was felt to be too draconian and so statutes have introduced new defenses that will limit or reduce the liability of those accused of committing offenses if they were suffering from a mental illness at the relevant time (see the insanity and mental disorder defenses).

• Drunkenness or drug abuse

Although individuals may have consumed a sufficient quantity of intoxicant or drug to reduce or eliminate their ability to understand exactly what they are doing, such conditions are self-induced and so the law does not generally allow any defense or excuse to be raised to any actions taken while incapacitated. The most generous states do permit individuals to repudiate agreements as soon as sober, but the conditions to exercising this right are strict.

• Bankruptcy
  Bankruptcy
  Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
  
  

If individuals find themselves in a situation where they can no longer pay their debts, they lose their status as credit-worthy and become bankrupt. States differ on the means whereby their outstanding liabilities can be treated as discharged and on the precise extent of the limits that are placed on their capacities during this time but, after discharge, they are returned to full capacity. In the United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, some states

U.S. state

A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...

 have spendthrift laws under which an irresponsible spender may be deemed to lack capacity to enter into contracts (in Europe, these are termed prodigality laws) and both sets of laws may be denied extraterritorial effect under public policy as imposing a potentially penal status on the individuals affected.

• Enemy aliens and/or terrorists

During times of war or civil strife, a state will limit the ability of its citizens to offer help or assistance in any form to those who are acting against the interests of the state. Hence, all commercial and other contracts with the "enemy", including terrorists, would be considered void or suspended until a cessation of hostilities is agreed.

Business entities

• Corporations

The extent of an artificial person's capacity depends on the law of the place of incorporation and the enabling provisions included in the constitutive documents

Constitutional documents

In relation to artificial persons, the constitutional documents of the entity are the documents which define the existence of the entity and regulate the structure and control of the entity and its members...

 of incorporation. The general rule is that anything not included in the corporation's capacity, whether expressly or by implication, is ultra vires

Ultra vires

Ultra vires is a Latin phrase meaning literally "beyond the powers", although its standard legal translation and substitute is "beyond power". If an act requires legal authority and it is done with such authority, it is...

, i.e. "beyond the power" of the corporation, and so may be unenforceable by the corporation, but the rights and interests of innocent third parties dealing with the corporations are usually protected.

• General and limited partnerships

There is a clear division between the approach of states to the definition of partnerships. One group of states treats general

General partnership

In the commercial and legal parlance of most countries, a general partnership or simply a partnership, refers to an association of persons or an unincorporated company with the following major features:...

 and limited

Limited partnership

A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...

 partnerships as aggregate. In terms of capacity, this means that they are no more than the sum of the natural persons who conduct the business. The other group of states allows partnerships to have a separate legal personality which changes the capacity of the "firm" and those who conduct its business and makes such partnerships more like corporations.

• Unions

In some states, trade union

Trade union

A trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...

s have limited capacity unless any contract made relates to union activities.

• Insolvency
  Insolvency
  Insolvency means the inability to pay one's debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:...
  
  

When a business entity becomes insolvent, an administrator

Administrator (law)

In law an administrator can be:* a person appointed by the court to handle the estate of someone who died without a will ....

, receiver, or other similar legal functionary may be appointed to determine whether the entity shall continue to trade or be sold so that the creditors may receive all or a proportion of the money owing to them. During this time, the capacity of the entity is limited so that its liabilities are not increased unreasonably and to the detriment of the existing creditors.