CS Executive · Company Law and Practice · Introduction to Company Law
Zenith Ltd, a public company, carried on business for several months with only one member after the others transferred their shares. Applying the statutory ground for personal liability on reduction of membership, who may be held liable? (Assume the statutory minimum for a public company is seven members.)
The remaining member who knew the membership was below the statutory minimum is personally liable. If business continues for more than six months with fewer members than required, he is severally liable for debts contracted after that period, without needing proof of fraud.
- AOnly the company, as a separate person, with no member liable
- BAny director who is also the sole remaining member only if fraud is proved
- CThe company's auditors for the debts incurred
- DThe remaining member, if he knew the membership was below the minimum for more than six months, for debts contracted after that periodCorrect
Explanation
The Companies Act, 2013 provides that if a company carries on business for more than six months while the number of members is below the statutory minimum and the member knows this, that member becomes severally liable for the company's debts contracted after that period. Fraud need not be proved, so the second option is wrong.
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