All India Bar Examination (AIBE) 2-II Previous Year Question Papers with Answers

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81.

A and B are the shareholders of Company C, private limited a company. Which of the following statements is the most accurate application of the principle set out below ?


Principle :

a company has a separate and district legal identity from the members who compose it.
A: Either A or B can be sued for the acts of Company C.
B: Only A can ordinarily be sued for the acts of company C.
C: Only B can ordinarily be sued for the acts of Company C.
D: B cannot ordinarily be sued for the acts of Company C.
E: Both A and B must be sued together for the acts of Company C.

The answer is: D

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Explanation

The correct option is D: B cannot ordinarily be sued for the acts of Company C.

This is because, as per the principle stated, a company has a separate and distinct legal identity from its members. This principle is often referred to as the ‘corporate veil’, which means that the company and its shareholders are separate entities. Therefore, shareholders like A and B are not personally liable for the acts of the company C. They cannot be sued for the acts of the company unless exceptional circumstances exist where the ‘corporate veil’ can be lifted. This principle protects shareholders by limiting their liability to the extent of their shareholding in the company. Hence, neither A nor B can ordinarily be sued for the acts of Company C.