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IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Mehra Textiles Pvt Ltd is a company registered under the Companies Act, 2013. Its sole shareholder, Mr Anil Mehra, owns 100% of the shares and also acts as its director. The company's factory building is registered in the company's name. A fire destroys the building. Anil claims he can personally claim the insurance proceeds because he owns all the shares. Which statement best reflects the legal position based on separate legal personality?

The building belongs to the company, not to Anil. A company is a separate legal person, so even a 100% shareholder has no ownership of or insurable interest in its specific assets. His interest is limited to his shares in the company.

  1. AAnil may claim, because a sole shareholder is the beneficial owner of all company property
  2. BThe building belongs to the company, so Anil has no insurable interest in it merely as a shareholderCorrect
  3. CAnil may claim, because a one-person shareholding means the company has no distinct existence
  4. DThe claim passes to Anil automatically because he is the only director
  5. The building is jointly owned by the company and Anil in proportion to his shares

Explanation

A company is a legal person distinct from its members. Company assets belong to the company, not to shareholders, even a sole shareholder. Holding shares gives Anil an interest in the company, not in its specific property, so he has no insurable interest in the building as such.

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