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CMA Foundation · Fundamentals of Financial and Cost Accounting · Four Frameworks of Accounting and Forms of Organization

Which statement correctly describes a company registered under the Companies Act, 2013, as a form of business organization?

A company is a separate legal entity distinct from its shareholders. It can own property, sue and be sued in its own name, and has perpetual succession. A shareholder's death does not end it, and liability in a company limited by shares is limited, not unlimited.

  1. AIt is a separate legal entity distinct from its shareholdersCorrect
  2. BIt has no existence apart from its members
  3. CIts members are always liable personally for all debts without limit
  4. DIt ceases to exist when a shareholder dies

Explanation

A company is an artificial legal person with its own identity, separate from its members. Because of this, it has perpetual succession and a shareholder's death does not end it. In a company limited by shares, liability is limited to the unpaid amount on shares, not unlimited.

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