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

Sunrise Textiles Pvt Ltd, a company incorporated in Surat, enters into a contract to buy cotton from Gujarat Fibres. Two weeks later, its only two shareholders, Mr. Mehta and Ms. Iyer, die in an accident. What is the effect on the company's existence?

The company continues to exist because perpetual succession is a key characteristic of a company. Being a separate legal person, it is unaffected by the death of its members. Its contracts remain valid, and it ends only through legal winding up or striking off.

  1. AThe company is dissolved automatically because it has no members left
  2. BThe contract with Gujarat Fibres becomes void
  3. CThe company continues to exist, because a company has perpetual successionCorrect
  4. DThe company becomes a partnership of the shareholders' legal heirs

Explanation

A company is a separate legal entity with perpetual succession. Its existence does not depend on the lives of its members, so the death of members does not end it. Only winding up or removal of its name by law can end its existence. The idea that it is dissolved automatically wrongly ties the company's life to its members.

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