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CA Foundation · Business Laws · The Companies Act, 2013

Vikram, a director of Orion Ltd, is also its employee under a service contract and is paid a salary. Orion Ltd goes into liquidation. Vikram claims to be treated as an employee for his unpaid salary. Which statement reflects the nature of a company?

Vikram can be treated as an employee. Because a company is a separate legal person, it can enter into a service contract with its own director or member. Being an owner or director does not prevent him from also being an employee.

  1. AA member or director can also be an employee of the company, since the company is a separate legal person who can contract with himCorrect
  2. BHe cannot be an employee because he is an owner of the company
  3. CHe can be an employee only if he holds no shares
  4. DHe can be an employee only if the Registrar approves the contract

Explanation

Following Lee v Lee's Air Farming Ltd, a person can be both a member or director and an employee, because the company is a separate legal entity capable of contracting with him. The owner status does not bar a service contract. Share-holding restrictions and Registrar approval are not required.

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