Mock Test Paper 1 Business Laws Answers Series I (September 2025)

 Page 1


1 
Mock Test Paper - Series I: August, 2025 
Date of Paper: 12
th
 August, 2025 
Time of Paper: 2 P.M. to 5 P.M. 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
ANSWERS 
1. (a) Bailment: As per Section 148 of the Indian Contract Act, 1872, bailment is the 
delivery of goods by one person to another for some purpose, upon a contract, 
that the goods shall, when the purpose is accomplished, be returned or otherwise 
disposed of according to the directions of the person delivering them.   
 Bailor’s duty to disclose faults in goods bailed in case of non- gratuitous 
bailment (Section 150): If the goods are bailed for hire, the bailor is responsible 
for such damage, whether he was or was not aware of the existence of such faults 
in the goods bailed. 
 Duty to pay necessary expenses in case of non-gratuitous bailment [Section 
158]: The bailor is liable to pay the extraordinary expenses incurred by the bailee. 
 Bailor’s responsibility to indemnify losses [Section 164]: It is the duty of bailor 
to indemnify all the losses and expenses, which bailee has to pay on account of 
defective goods. 
 In the instant case, Y took a car on lease from X for 10 days for ` 50,000. During 
the journey, Y has to spend ` 10,000 for repair of engine and paid ` 50,000 for 
hospital expenses due to accident because of fault in brakes of car.  These are 
the extraordinary expenses and losses and it is the bailor’s duty to bear such 
expenses and losses. 
 Therefore, the answers are:  
(i) Y can withhold the hire charges of ` 50,000 on account of non-payment of 
damages and claim an additional `10,000, from X. 
(ii) X is liable for the full ` 60,000 (`10,000 repair + ` 50,000 hospital) as it is 
the bailor’s duty to supply a car fit for the purpose for which it was hired. 
 (b) (i)  Section 5(4) and (5) of the Companies Act, 2013 contains the following 
provisions: 
 Manner of inclusion of the entrenchment provision: The provisions for 
entrenchment shall only be made either on formation of a company, or by 
Page 2


1 
Mock Test Paper - Series I: August, 2025 
Date of Paper: 12
th
 August, 2025 
Time of Paper: 2 P.M. to 5 P.M. 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
ANSWERS 
1. (a) Bailment: As per Section 148 of the Indian Contract Act, 1872, bailment is the 
delivery of goods by one person to another for some purpose, upon a contract, 
that the goods shall, when the purpose is accomplished, be returned or otherwise 
disposed of according to the directions of the person delivering them.   
 Bailor’s duty to disclose faults in goods bailed in case of non- gratuitous 
bailment (Section 150): If the goods are bailed for hire, the bailor is responsible 
for such damage, whether he was or was not aware of the existence of such faults 
in the goods bailed. 
 Duty to pay necessary expenses in case of non-gratuitous bailment [Section 
158]: The bailor is liable to pay the extraordinary expenses incurred by the bailee. 
 Bailor’s responsibility to indemnify losses [Section 164]: It is the duty of bailor 
to indemnify all the losses and expenses, which bailee has to pay on account of 
defective goods. 
 In the instant case, Y took a car on lease from X for 10 days for ` 50,000. During 
the journey, Y has to spend ` 10,000 for repair of engine and paid ` 50,000 for 
hospital expenses due to accident because of fault in brakes of car.  These are 
the extraordinary expenses and losses and it is the bailor’s duty to bear such 
expenses and losses. 
 Therefore, the answers are:  
(i) Y can withhold the hire charges of ` 50,000 on account of non-payment of 
damages and claim an additional `10,000, from X. 
(ii) X is liable for the full ` 60,000 (`10,000 repair + ` 50,000 hospital) as it is 
the bailor’s duty to supply a car fit for the purpose for which it was hired. 
 (b) (i)  Section 5(4) and (5) of the Companies Act, 2013 contains the following 
provisions: 
 Manner of inclusion of the entrenchment provision: The provisions for 
entrenchment shall only be made either on formation of a company, or by 
2 
an amendment in the articles agreed to by all the members of the company 
in the case of a private company and by a special resolution in the case of 
a public company.  
 Notice to the registrar of the entrenchment provision: Where the 
articles contain provisions for entrenchment, whether made on formation 
or by amendment, the company shall give notice to the Registrar of such 
provisions in such form and manner as may be prescribed.  
 In the instant case, Evergreen Private Limited can follow the above 
procedure i.e. with the consent of all the members and notice to the 
registrar to include the entrenchment provision in its Articles. 
 Yes, the advice will differ, if the company is public company, since it has to 
pass Special Resolution and also inform to the registrar.  
(ii) According to Section 2(85) of the Companies Act, 2013, Small company 
means a company, other than a public company—  
(i) paid-up share capital of which does not exceed four crore rupees or 
such higher amount as may be prescribed which shall not be more 
than ten crore rupees; and 
(ii)  turnover of which as per profit and loss account for the immediately 
preceding financial year does not exceed forty crore rupees or such 
higher amount as may be prescribed which shall not be more than 
one hundred crore rupees:  
 Exceptions: This clause shall not apply to: 
(A)  a holding company or a subsidiary company;  
(B)   a company registered under section 8; or 
(C) a company or body corporate governed by any special Act. 
In the instant case, 
1. STS Pvt. Ltd. though is a small company taking into account its 
turnover and paid up share capital (i.e. ` 10 crores and ` 1 crore 
respectively), but since it is the subsidiary company of UV Infratech 
Pvt. Ltd. (UV Infratech Pvt. Ltd. holds ` 60,00,000 equity share 
capital of STS Pvt. Ltd.), hence STS Pvt. cannot be considered as 
small company.  
Page 3


1 
Mock Test Paper - Series I: August, 2025 
Date of Paper: 12
th
 August, 2025 
Time of Paper: 2 P.M. to 5 P.M. 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
ANSWERS 
1. (a) Bailment: As per Section 148 of the Indian Contract Act, 1872, bailment is the 
delivery of goods by one person to another for some purpose, upon a contract, 
that the goods shall, when the purpose is accomplished, be returned or otherwise 
disposed of according to the directions of the person delivering them.   
 Bailor’s duty to disclose faults in goods bailed in case of non- gratuitous 
bailment (Section 150): If the goods are bailed for hire, the bailor is responsible 
for such damage, whether he was or was not aware of the existence of such faults 
in the goods bailed. 
 Duty to pay necessary expenses in case of non-gratuitous bailment [Section 
158]: The bailor is liable to pay the extraordinary expenses incurred by the bailee. 
 Bailor’s responsibility to indemnify losses [Section 164]: It is the duty of bailor 
to indemnify all the losses and expenses, which bailee has to pay on account of 
defective goods. 
 In the instant case, Y took a car on lease from X for 10 days for ` 50,000. During 
the journey, Y has to spend ` 10,000 for repair of engine and paid ` 50,000 for 
hospital expenses due to accident because of fault in brakes of car.  These are 
the extraordinary expenses and losses and it is the bailor’s duty to bear such 
expenses and losses. 
 Therefore, the answers are:  
(i) Y can withhold the hire charges of ` 50,000 on account of non-payment of 
damages and claim an additional `10,000, from X. 
(ii) X is liable for the full ` 60,000 (`10,000 repair + ` 50,000 hospital) as it is 
the bailor’s duty to supply a car fit for the purpose for which it was hired. 
 (b) (i)  Section 5(4) and (5) of the Companies Act, 2013 contains the following 
provisions: 
 Manner of inclusion of the entrenchment provision: The provisions for 
entrenchment shall only be made either on formation of a company, or by 
2 
an amendment in the articles agreed to by all the members of the company 
in the case of a private company and by a special resolution in the case of 
a public company.  
 Notice to the registrar of the entrenchment provision: Where the 
articles contain provisions for entrenchment, whether made on formation 
or by amendment, the company shall give notice to the Registrar of such 
provisions in such form and manner as may be prescribed.  
 In the instant case, Evergreen Private Limited can follow the above 
procedure i.e. with the consent of all the members and notice to the 
registrar to include the entrenchment provision in its Articles. 
 Yes, the advice will differ, if the company is public company, since it has to 
pass Special Resolution and also inform to the registrar.  
(ii) According to Section 2(85) of the Companies Act, 2013, Small company 
means a company, other than a public company—  
(i) paid-up share capital of which does not exceed four crore rupees or 
such higher amount as may be prescribed which shall not be more 
than ten crore rupees; and 
(ii)  turnover of which as per profit and loss account for the immediately 
preceding financial year does not exceed forty crore rupees or such 
higher amount as may be prescribed which shall not be more than 
one hundred crore rupees:  
 Exceptions: This clause shall not apply to: 
(A)  a holding company or a subsidiary company;  
(B)   a company registered under section 8; or 
(C) a company or body corporate governed by any special Act. 
In the instant case, 
1. STS Pvt. Ltd. though is a small company taking into account its 
turnover and paid up share capital (i.e. ` 10 crores and ` 1 crore 
respectively), but since it is the subsidiary company of UV Infratech 
Pvt. Ltd. (UV Infratech Pvt. Ltd. holds ` 60,00,000 equity share 
capital of STS Pvt. Ltd.), hence STS Pvt. cannot be considered as 
small company.  
3 
2. ZX Ltd. cannot be considered as a small company since it is a public 
company. 
(c)  Partner by holding out (Section 28 of the Indian Partnership Act, 1932): 
Partnership by holding out is also known as partnership by estoppel. Where a man 
holds himself out as a partner, or allows others to do it, he is then stopped from 
denying the character he has assumed and upon the faith of which creditors may 
be presumed to have acted.  
 When a person represent himself, or knowingly permits himself, to be represented 
as a partner in a firm (when in fact he is not) he is liable, like a partner in the firm 
to anyone who on the faith of such representation has given credit to the firm. 
 A person may himself, by his words or conduct have induced others to believe 
that he is a partner or he may have allowed others to represent him as a partner. 
The result in both the cases is identical. 
 It is only the person to whom the representation has been made and who has 
acted thereon that has right to enforce liability arising out of ‘holding out’. 
 For the purpose of fixing liability on a person who has, by representation, led 
another to act, it is not necessary to show that he was actuated by a fraudulent 
intention. 
 The rule given in Section 28 is also applicable to a former partner who has retired 
from the firm without giving proper public notice of his retirement. In such cases a 
person who, even subsequent to the retirement, give credit to the firm on the belief 
that he was a partner, will be entitled to hold him liable. 
2. (a) (i) Rights of lien (Section 47 of the Sale of Goods Act, 1930) 
 An unpaid seller has a right of lien on the goods for the price while he is in 
possession, until the payment or tender of the price of such goods. It is the 
right to retain the possession of the goods and refusal to deliver them to 
the buyer until the price due in respect of them is paid or tendered.  
 Exercise of right of lien: This right can be exercised by him in the 
following cases only: 
(a) where goods have been sold without any stipulation of credit; (i.e., 
on cash sale) 
(b) where goods have been sold on credit but the term of credit has 
expired; or 
(c) where the buyer becomes insolvent. 
Page 4


1 
Mock Test Paper - Series I: August, 2025 
Date of Paper: 12
th
 August, 2025 
Time of Paper: 2 P.M. to 5 P.M. 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
ANSWERS 
1. (a) Bailment: As per Section 148 of the Indian Contract Act, 1872, bailment is the 
delivery of goods by one person to another for some purpose, upon a contract, 
that the goods shall, when the purpose is accomplished, be returned or otherwise 
disposed of according to the directions of the person delivering them.   
 Bailor’s duty to disclose faults in goods bailed in case of non- gratuitous 
bailment (Section 150): If the goods are bailed for hire, the bailor is responsible 
for such damage, whether he was or was not aware of the existence of such faults 
in the goods bailed. 
 Duty to pay necessary expenses in case of non-gratuitous bailment [Section 
158]: The bailor is liable to pay the extraordinary expenses incurred by the bailee. 
 Bailor’s responsibility to indemnify losses [Section 164]: It is the duty of bailor 
to indemnify all the losses and expenses, which bailee has to pay on account of 
defective goods. 
 In the instant case, Y took a car on lease from X for 10 days for ` 50,000. During 
the journey, Y has to spend ` 10,000 for repair of engine and paid ` 50,000 for 
hospital expenses due to accident because of fault in brakes of car.  These are 
the extraordinary expenses and losses and it is the bailor’s duty to bear such 
expenses and losses. 
 Therefore, the answers are:  
(i) Y can withhold the hire charges of ` 50,000 on account of non-payment of 
damages and claim an additional `10,000, from X. 
(ii) X is liable for the full ` 60,000 (`10,000 repair + ` 50,000 hospital) as it is 
the bailor’s duty to supply a car fit for the purpose for which it was hired. 
 (b) (i)  Section 5(4) and (5) of the Companies Act, 2013 contains the following 
provisions: 
 Manner of inclusion of the entrenchment provision: The provisions for 
entrenchment shall only be made either on formation of a company, or by 
2 
an amendment in the articles agreed to by all the members of the company 
in the case of a private company and by a special resolution in the case of 
a public company.  
 Notice to the registrar of the entrenchment provision: Where the 
articles contain provisions for entrenchment, whether made on formation 
or by amendment, the company shall give notice to the Registrar of such 
provisions in such form and manner as may be prescribed.  
 In the instant case, Evergreen Private Limited can follow the above 
procedure i.e. with the consent of all the members and notice to the 
registrar to include the entrenchment provision in its Articles. 
 Yes, the advice will differ, if the company is public company, since it has to 
pass Special Resolution and also inform to the registrar.  
(ii) According to Section 2(85) of the Companies Act, 2013, Small company 
means a company, other than a public company—  
(i) paid-up share capital of which does not exceed four crore rupees or 
such higher amount as may be prescribed which shall not be more 
than ten crore rupees; and 
(ii)  turnover of which as per profit and loss account for the immediately 
preceding financial year does not exceed forty crore rupees or such 
higher amount as may be prescribed which shall not be more than 
one hundred crore rupees:  
 Exceptions: This clause shall not apply to: 
(A)  a holding company or a subsidiary company;  
(B)   a company registered under section 8; or 
(C) a company or body corporate governed by any special Act. 
In the instant case, 
1. STS Pvt. Ltd. though is a small company taking into account its 
turnover and paid up share capital (i.e. ` 10 crores and ` 1 crore 
respectively), but since it is the subsidiary company of UV Infratech 
Pvt. Ltd. (UV Infratech Pvt. Ltd. holds ` 60,00,000 equity share 
capital of STS Pvt. Ltd.), hence STS Pvt. cannot be considered as 
small company.  
3 
2. ZX Ltd. cannot be considered as a small company since it is a public 
company. 
(c)  Partner by holding out (Section 28 of the Indian Partnership Act, 1932): 
Partnership by holding out is also known as partnership by estoppel. Where a man 
holds himself out as a partner, or allows others to do it, he is then stopped from 
denying the character he has assumed and upon the faith of which creditors may 
be presumed to have acted.  
 When a person represent himself, or knowingly permits himself, to be represented 
as a partner in a firm (when in fact he is not) he is liable, like a partner in the firm 
to anyone who on the faith of such representation has given credit to the firm. 
 A person may himself, by his words or conduct have induced others to believe 
that he is a partner or he may have allowed others to represent him as a partner. 
The result in both the cases is identical. 
 It is only the person to whom the representation has been made and who has 
acted thereon that has right to enforce liability arising out of ‘holding out’. 
 For the purpose of fixing liability on a person who has, by representation, led 
another to act, it is not necessary to show that he was actuated by a fraudulent 
intention. 
 The rule given in Section 28 is also applicable to a former partner who has retired 
from the firm without giving proper public notice of his retirement. In such cases a 
person who, even subsequent to the retirement, give credit to the firm on the belief 
that he was a partner, will be entitled to hold him liable. 
2. (a) (i) Rights of lien (Section 47 of the Sale of Goods Act, 1930) 
 An unpaid seller has a right of lien on the goods for the price while he is in 
possession, until the payment or tender of the price of such goods. It is the 
right to retain the possession of the goods and refusal to deliver them to 
the buyer until the price due in respect of them is paid or tendered.  
 Exercise of right of lien: This right can be exercised by him in the 
following cases only: 
(a) where goods have been sold without any stipulation of credit; (i.e., 
on cash sale) 
(b) where goods have been sold on credit but the term of credit has 
expired; or 
(c) where the buyer becomes insolvent. 
4 
 In the instant case, P is still in possession of the goods and the full price 
was not paid by Q within the stipulated time i.e. till 31st December 2024.  
Therefore, P is an unpaid seller and can rightfully exercise lien under 
Section 47.  
 Even though the unpaid amount is only ` 20,000, P’s refusal to deliver the 
goods is valid. Thus, P is legally justified in exercising right of lien. 
(ii) Legal Rules of Auction sale: Section 64 of the Sale of Goods Act, 1930 
provides following rules to regulate the sale by auction: 
 Completion of the contract of sale: The sale is complete when the 
auctioneer announces its completion by the fall of hammer or in any other 
customary manner. Until such announcement is made, any bidder may 
retract from his bid. 
 In the instant case, the sale of sculpture to L is not complete as only 
hammer falls but the auctioneer did not announce “you are the highest 
bidder”.  
 Therefore, L’s claim contending that the auctioneer is bound to sell the 
sculpture to him at the price he bid is not valid as the auction sale was not 
complete.  
 (b) (i)  Separate Legal Entity: There are distinctive features between different 
forms of organisations and the most striking feature in the company form 
of organisation vis-à-vis the other forms of business organisations is that it 
acquires a unique character of being a separate legal entity. In other words, 
when a company is registered, it is clothed with a legal personality. It 
comes to have almost the same rights and powers as a human being. Its 
existence is distinct and separate from that of its members. A company can 
own property, have bank account, raise loans, incur liabilities and enter 
into contracts.  
(a) It is at law, a person which is different from the subscribers to the 
memorandum of association. It’s personality is distinct and separate 
from the personality of those who compose it. 
(b) Even members can contract with company, acquire right against it 
or incur liability to it. For the debts of the company, only its 
creditors can sue it and not its members.   
 A company is capable of owning, enjoying and disposing of property in 
its own name. Although the capital and assets are contributed by the 
Page 5


1 
Mock Test Paper - Series I: August, 2025 
Date of Paper: 12
th
 August, 2025 
Time of Paper: 2 P.M. to 5 P.M. 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
ANSWERS 
1. (a) Bailment: As per Section 148 of the Indian Contract Act, 1872, bailment is the 
delivery of goods by one person to another for some purpose, upon a contract, 
that the goods shall, when the purpose is accomplished, be returned or otherwise 
disposed of according to the directions of the person delivering them.   
 Bailor’s duty to disclose faults in goods bailed in case of non- gratuitous 
bailment (Section 150): If the goods are bailed for hire, the bailor is responsible 
for such damage, whether he was or was not aware of the existence of such faults 
in the goods bailed. 
 Duty to pay necessary expenses in case of non-gratuitous bailment [Section 
158]: The bailor is liable to pay the extraordinary expenses incurred by the bailee. 
 Bailor’s responsibility to indemnify losses [Section 164]: It is the duty of bailor 
to indemnify all the losses and expenses, which bailee has to pay on account of 
defective goods. 
 In the instant case, Y took a car on lease from X for 10 days for ` 50,000. During 
the journey, Y has to spend ` 10,000 for repair of engine and paid ` 50,000 for 
hospital expenses due to accident because of fault in brakes of car.  These are 
the extraordinary expenses and losses and it is the bailor’s duty to bear such 
expenses and losses. 
 Therefore, the answers are:  
(i) Y can withhold the hire charges of ` 50,000 on account of non-payment of 
damages and claim an additional `10,000, from X. 
(ii) X is liable for the full ` 60,000 (`10,000 repair + ` 50,000 hospital) as it is 
the bailor’s duty to supply a car fit for the purpose for which it was hired. 
 (b) (i)  Section 5(4) and (5) of the Companies Act, 2013 contains the following 
provisions: 
 Manner of inclusion of the entrenchment provision: The provisions for 
entrenchment shall only be made either on formation of a company, or by 
2 
an amendment in the articles agreed to by all the members of the company 
in the case of a private company and by a special resolution in the case of 
a public company.  
 Notice to the registrar of the entrenchment provision: Where the 
articles contain provisions for entrenchment, whether made on formation 
or by amendment, the company shall give notice to the Registrar of such 
provisions in such form and manner as may be prescribed.  
 In the instant case, Evergreen Private Limited can follow the above 
procedure i.e. with the consent of all the members and notice to the 
registrar to include the entrenchment provision in its Articles. 
 Yes, the advice will differ, if the company is public company, since it has to 
pass Special Resolution and also inform to the registrar.  
(ii) According to Section 2(85) of the Companies Act, 2013, Small company 
means a company, other than a public company—  
(i) paid-up share capital of which does not exceed four crore rupees or 
such higher amount as may be prescribed which shall not be more 
than ten crore rupees; and 
(ii)  turnover of which as per profit and loss account for the immediately 
preceding financial year does not exceed forty crore rupees or such 
higher amount as may be prescribed which shall not be more than 
one hundred crore rupees:  
 Exceptions: This clause shall not apply to: 
(A)  a holding company or a subsidiary company;  
(B)   a company registered under section 8; or 
(C) a company or body corporate governed by any special Act. 
In the instant case, 
1. STS Pvt. Ltd. though is a small company taking into account its 
turnover and paid up share capital (i.e. ` 10 crores and ` 1 crore 
respectively), but since it is the subsidiary company of UV Infratech 
Pvt. Ltd. (UV Infratech Pvt. Ltd. holds ` 60,00,000 equity share 
capital of STS Pvt. Ltd.), hence STS Pvt. cannot be considered as 
small company.  
3 
2. ZX Ltd. cannot be considered as a small company since it is a public 
company. 
(c)  Partner by holding out (Section 28 of the Indian Partnership Act, 1932): 
Partnership by holding out is also known as partnership by estoppel. Where a man 
holds himself out as a partner, or allows others to do it, he is then stopped from 
denying the character he has assumed and upon the faith of which creditors may 
be presumed to have acted.  
 When a person represent himself, or knowingly permits himself, to be represented 
as a partner in a firm (when in fact he is not) he is liable, like a partner in the firm 
to anyone who on the faith of such representation has given credit to the firm. 
 A person may himself, by his words or conduct have induced others to believe 
that he is a partner or he may have allowed others to represent him as a partner. 
The result in both the cases is identical. 
 It is only the person to whom the representation has been made and who has 
acted thereon that has right to enforce liability arising out of ‘holding out’. 
 For the purpose of fixing liability on a person who has, by representation, led 
another to act, it is not necessary to show that he was actuated by a fraudulent 
intention. 
 The rule given in Section 28 is also applicable to a former partner who has retired 
from the firm without giving proper public notice of his retirement. In such cases a 
person who, even subsequent to the retirement, give credit to the firm on the belief 
that he was a partner, will be entitled to hold him liable. 
2. (a) (i) Rights of lien (Section 47 of the Sale of Goods Act, 1930) 
 An unpaid seller has a right of lien on the goods for the price while he is in 
possession, until the payment or tender of the price of such goods. It is the 
right to retain the possession of the goods and refusal to deliver them to 
the buyer until the price due in respect of them is paid or tendered.  
 Exercise of right of lien: This right can be exercised by him in the 
following cases only: 
(a) where goods have been sold without any stipulation of credit; (i.e., 
on cash sale) 
(b) where goods have been sold on credit but the term of credit has 
expired; or 
(c) where the buyer becomes insolvent. 
4 
 In the instant case, P is still in possession of the goods and the full price 
was not paid by Q within the stipulated time i.e. till 31st December 2024.  
Therefore, P is an unpaid seller and can rightfully exercise lien under 
Section 47.  
 Even though the unpaid amount is only ` 20,000, P’s refusal to deliver the 
goods is valid. Thus, P is legally justified in exercising right of lien. 
(ii) Legal Rules of Auction sale: Section 64 of the Sale of Goods Act, 1930 
provides following rules to regulate the sale by auction: 
 Completion of the contract of sale: The sale is complete when the 
auctioneer announces its completion by the fall of hammer or in any other 
customary manner. Until such announcement is made, any bidder may 
retract from his bid. 
 In the instant case, the sale of sculpture to L is not complete as only 
hammer falls but the auctioneer did not announce “you are the highest 
bidder”.  
 Therefore, L’s claim contending that the auctioneer is bound to sell the 
sculpture to him at the price he bid is not valid as the auction sale was not 
complete.  
 (b) (i)  Separate Legal Entity: There are distinctive features between different 
forms of organisations and the most striking feature in the company form 
of organisation vis-à-vis the other forms of business organisations is that it 
acquires a unique character of being a separate legal entity. In other words, 
when a company is registered, it is clothed with a legal personality. It 
comes to have almost the same rights and powers as a human being. Its 
existence is distinct and separate from that of its members. A company can 
own property, have bank account, raise loans, incur liabilities and enter 
into contracts.  
(a) It is at law, a person which is different from the subscribers to the 
memorandum of association. It’s personality is distinct and separate 
from the personality of those who compose it. 
(b) Even members can contract with company, acquire right against it 
or incur liability to it. For the debts of the company, only its 
creditors can sue it and not its members.   
 A company is capable of owning, enjoying and disposing of property in 
its own name. Although the capital and assets are contributed by the 
5 
shareholders, the company becomes the owner of its capital and assets. 
The shareholders are not the private or joint owners of the company’s 
property. 
 A member does not even have an insurable interest in the property of the 
company.  The leading case on this point is of Macaura Vs. Northern 
Assurance Co. Limited (1925): 
 Fact of the case 
 Macaura (M) was the holder of nearly all (except one) shares of a timber 
company.  He was also a major creditor of the company.  M insured the 
company’s timber in his own name. The timber was lost in a fire.  
M claimed insurance compensation. Held, the insurance company was 
not liable to him as no shareholder has any right to any item of property 
owned by the company, for he has no legal or equitable interest in them. 
Hence in this case, since the timber was not insured in the company’s 
name, M could not claim the compensation from insurance company. 
(ii) Perpetual Succession: Members may die or change, but the company 
goes on till it is wound up on the grounds specified by the Act. The shares 
of the company may change hands infinitely but that does not affect the 
existence of the company.  Since a company is an artificial person 
created by law, law alone can bring an end to its life.  Its existence is not 
affected by the death or insolvency of its members. 
(c)  Change of name of LLP (Section 17 of the LLP Act, 2008):  
(1)  Notwithstanding anything contained in sections 15 and 16, if through 
inadvertence or otherwise, a LLP, on its first registration or on its 
registration by a new body corporate, its registered name, is registered 
by a name which is identical with or too nearly resembles to — 
(a)  that of any other LLP or a company; or 
(b)  a registered trade mark of a proprietor under the Trade Marks Act, 
1999, as is likely to be mistaken for it,  
 then on an application of such LLP or proprietor referred to in clauses (a) 
and (b) respectively or a company,  
 the Central Government may direct that such LLP to change its name or 
new name within a period of 3 months from the date of issue of such 
direction.