Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting for Shares

Question:

How is a company's legal entity distinct from its members?

Options:

Members have unlimited liability for company debts

Members share personal assets with the company

The company's existence is tied to its members

The company is treated as a separate entity in law

Correct Answer:

The company is treated as a separate entity in law

Explanation:

The legal concept of a company as a separate legal entity means that a company is recognized as a distinct entity from its members (shareholders or owners) under the law. This distinction allows the company to have its own rights, responsibilities, obligations, and legal identity that is separate from those of its individual members.