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IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Vikram holds all but one share in Kaveri Logistics Pvt Ltd, a company he incorporated. He is also its managing director. The company's trucks cause damage and the company becomes insolvent. A creditor asks whether Vikram's personal assets can be reached simply because he controls the company. Applying the doctrine in Salomon v Salomon as followed in India, what is the correct position?

Vikram is not personally liable merely because he owns almost all the shares and manages the company. Separate legal personality protects him, unless the court lifts the veil for fraud or improper conduct or a statute imposes liability. Shareholding and control alone do not make him liable.

  1. AVikram is not personally liable merely because of his control, unless the veil is lifted for fraud or improper use or a statute imposes liabilityCorrect
  2. BVikram is always liable because he owns nearly all shares
  3. CVikram is liable because a private company's debts are always shared by its directors
  4. DVikram is liable because he is both shareholder and employee
  5. The creditor can claim directly from the other shareholder in full

Explanation

A company is a separate legal person, so its debts are its own even where one person owns almost all shares and runs it. Courts lift the veil only in exceptional cases such as fraud, sham, or statutory provisions. Control and share ownership alone are insufficient, so the other options misstate the rule.

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