What is the main legal effect of incorporating a company as a separate legal entity?
Correct answer: C. The company becomes legally distinct from its members
- A. The shareholders own the company’s physical assets directly
- B. The directors become personally liable for all debts
- C. The company becomes legally distinct from its members
- D. The company is exempt from all government regulation
Explanation
Incorporation creates a legal person separate from its shareholders and directors. Therefore, company property and liabilities generally belong to the company, not directly to its members.
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About Company Law Basics
Company law covers incorporation, separate legal personality, limited liability, shares, the memorandum and articles of association, and the powers and duties of directors. It also includes shareholder meetings, resolutions, company records, audit, winding up and the differences between a registered company, partnership and sole proprietorship.
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