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CS Executive · Company Law and Practice · Introduction to Company Law

Rohan holds 99% of the shares of Rohan Traders Pvt Ltd and is its managing director. He personally uses the company's godown, which is owned by the company, to store his friend's goods for free, claiming that he is the owner of everything. Which principle of company law defeats his claim?

The company's separate legal personality defeats Rohan's claim. The godown is the company's property, and even a 99 percent shareholder owns only his shares, not the company's assets. Rohan therefore cannot treat the godown as his own.

  1. AA company is a separate legal entity, so the godown belongs to the company and not to RohanCorrect
  2. BA company has limited liability, so Rohan cannot use any asset
  3. CA company has a common seal, so only the seal can authorise use of assets
  4. DA company has transferable shares, so the godown is owned by the transferee

Explanation

Under the doctrine of separate legal personality, the company owns its assets and a member, even a 99% holder, has no ownership in them. Rohan owns only shares. The other options mix up unrelated characteristics. Limited liability concerns members' liability, not asset ownership.

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