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CA Intermediate · Corporate and Other Laws · Preliminary

Meridian Traders Pvt Ltd has a paid-up share capital of Rs 3 crore and is wholly owned by two individuals, Anil and Beena, who are its only shareholders. Anil says that because the company is so closely held, it is merely a name for the two of them and Anil can sue a debtor in his own name for the company's dues. Under the Companies Act, 2013, which statement reflects the correct position?

The company has a separate legal personality, so the debt is owed to the company and it must sue in its own name. Closely held status or having only two shareholders does not remove this separate identity, and a shareholder cannot enforce company debts personally.

  1. AThe company has a separate legal personality, so the debt is owed to the company and the company must sue in its own nameCorrect
  2. BAnil may sue in his own name because he holds 50% of the shares
  3. CSince there are only two shareholders, the company is treated as a partnership for recovery of debts
  4. DThe company's separate personality applies only to public companies, so a private company is treated as its members

Explanation

A company, once incorporated, is a legal person distinct from its members, irrespective of how few shareholders it has or how closely held it is. The debt is an asset of the company, so only the company can sue for it. Option B is wrong because shareholding gives no right to enforce the company's debts personally.

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