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CA Foundation · Business Laws · The Companies Act, 2013

Ravi, the sole shareholder of Ravi Traders Pvt Ltd, personally borrowed Rs 5 lakh from Suresh. Suresh now demands repayment from the company's bank account, saying Ravi owns all the shares. Which statement is correct?

The company is not liable. A company is a separate legal person distinct from its members, so Ravi's personal borrowing is his own debt. Holding all the shares does not make the company answerable for his private obligations, and Suresh cannot proceed against company assets.

  1. AThe company is liable because Ravi is its only shareholder
  2. BThe company is not liable, as it is a separate legal person from Ravi and the debt is Ravi's personal debtCorrect
  3. CThe company is liable only if Ravi is also a director
  4. DSuresh may seize the company's assets directly because Ravi owns all the shares

Explanation

A company has a separate legal personality distinct from its members, as established in Salomon v. Salomon. Ravi's personal debt is not the company's debt, even though he holds all the shares. Being a shareholder or director does not make the company liable for his private borrowings.

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