Skip to content

CSEET · Business Laws and Management · Elements of Company Law

Ramesh holds all the shares of Kaveri Traders Private Limited except one share held by his wife. The company enters into a contract with Ramesh to buy his land. Which statement best reflects the legal position?

The contract is valid because a company has a legal personality separate from its members. Even a shareholder holding almost all the shares is a distinct person from the company, so he can lawfully contract with it, as in the Salomon principle.

  1. AThe contract is void because a person cannot contract with a company he controls
  2. BThe contract is valid because the company is a separate legal person distinct from its membersCorrect
  3. CThe contract is valid only if the wife also signs it
  4. DThe contract is voidable at the option of the Registrar of Companies

Explanation

A company is a separate legal entity from its members, as established in Salomon v. Salomon. Even a controlling shareholder can contract with it. The option requiring the wife's signature or the Registrar's option has no basis in the principle of separate personality.

Did you get it right without looking?

One question tells you little. A timed set on Elements of Company Law shows your real accuracy, how long you take and where you lose marks.

Practise Elements of Company LawFree diagnostic mock

More Elements of Company Law questions