COMPANY LAW – CORPORATE STRUCTURES
PRACTICE EXAM 2026 | VERIFIED QUESTIONS
& DETAILED RATIONALES
COMPANY LAW – CORPORATE STRUCTURES PRACTICE EXAM 2026
VERIFIED QUESTIONS & DETAILED RATIONALE
QUESTION 1
Which of the following best describes the concept of "separate legal personality" in
company law?
A) The directors of a company are personally liable for all company debts
B) A company can only own property through its shareholders
C) C) A company is treated as a distinct legal entity, separate from its
members and directors
D) Shareholders are directly responsible for the acts of the company
E) A company cannot sue or be sued in its own name
CORRECT ANSWER: C
RATIONALE: The doctrine of separate legal personality, established in Salomon v
Salomon & Co Ltd [1897], holds that a company, upon incorporation, becomes a distinct
legal entity separate from its shareholders and directors. It can own property, enter
contracts, sue and be sued in its own name, completely independently of its members.
QUESTION 2
In the landmark case of Salomon v Salomon & Co Ltd [1897], what was the primary
legal principle established?
A) Directors must always act in the best interest of creditors
B) Shareholders are liable for company debts up to the value of their shares
C) A company can only be formed by a minimum of seven members
,D) Courts may always look behind the corporate veil when fraud is suspected
E) A validly incorporated company has a separate legal personality distinct
from its members
CORRECT ANSWER: E
RATIONALE: The House of Lords in Salomon v Salomon conclusively established
that once a company is validly incorporated under the Companies Act, it is a separate
legal person distinct from its members, even where one person effectively controls the
entire company. This remains the foundational principle of company law.
QUESTION 3
Which type of company limits the liability of its members to the amount unpaid on their
shares?
A) Company limited by guarantee
B) Unlimited company
C) Community interest company
D) Charitable incorporated organisation
E) Company limited by shares
CORRECT ANSWER: E
RATIONALE: A company limited by shares is one where the liability of members is
limited to any amount unpaid on their shares. Once a member has fully paid for their
shares, they bear no further liability for the company's debts, making this the most
common form of registered company.
QUESTION 4
What is the main distinction between a public limited company (PLC) and a private
limited company?
,A) A PLC cannot issue debentures while a private company can
B) A private company must have a minimum of 50 shareholders
C) A PLC may offer its shares to the public while a private company may not
D) A private company must have at least two directors
E) A PLC is exempt from filing annual accounts
CORRECT ANSWER: C
RATIONALE: The fundamental distinction is that a PLC is permitted to offer its shares
and debentures to the general public and may be listed on a stock exchange, whereas a
private limited company is prohibited from making such public offers. A PLC must also
satisfy minimum share capital requirements not imposed on private companies.
QUESTION 5
The "veil of incorporation" refers to which of the following?
A) The requirement to publish a company's memorandum publicly
B) The obligation to disclose directors' interests in contracts
C) The process of winding up a company voluntarily
D) The rule that all shareholders must remain anonymous
E) The legal separation between the company as an entity and its individual
members
CORRECT ANSWER: E
RATIONALE: The veil of incorporation is the legal metaphor describing the separation
between the company and its members. It means the company's assets and liabilities
are its own and not those of its shareholders. Courts will generally respect this veil
unless there are grounds for lifting it, such as fraud or sham transactions.
, QUESTION 6
Under which circumstances may a court "lift the corporate veil"?
A) Whenever a company makes a financial loss
B) When a company is newly incorporated
C) When shareholders request a general meeting
D) When the company changes its registered address
E) When the company is used as a sham or to perpetrate fraud
CORRECT ANSWER: E
RATIONALE: Courts will pierce or lift the corporate veil in exceptional circumstances,
including where the corporate form is used as a sham, a facade to evade legal
obligations, or to perpetrate fraud. This was affirmed in Woolfson v Strathclyde Regional
Council [1978] and Prest v Petrodel Resources Ltd [2013], where the Supreme Court
narrowed but preserved this doctrine.
QUESTION 7
A company limited by guarantee is most commonly used for which of the following
purposes?
A) Large-scale manufacturing businesses
B) Companies seeking stock exchange listing
C) Sole traders converting to corporate status
D) Import and export trading companies
E) Charitable, non-profit, and professional membership organisations
CORRECT ANSWER: E
PRACTICE EXAM 2026 | VERIFIED QUESTIONS
& DETAILED RATIONALES
COMPANY LAW – CORPORATE STRUCTURES PRACTICE EXAM 2026
VERIFIED QUESTIONS & DETAILED RATIONALE
QUESTION 1
Which of the following best describes the concept of "separate legal personality" in
company law?
A) The directors of a company are personally liable for all company debts
B) A company can only own property through its shareholders
C) C) A company is treated as a distinct legal entity, separate from its
members and directors
D) Shareholders are directly responsible for the acts of the company
E) A company cannot sue or be sued in its own name
CORRECT ANSWER: C
RATIONALE: The doctrine of separate legal personality, established in Salomon v
Salomon & Co Ltd [1897], holds that a company, upon incorporation, becomes a distinct
legal entity separate from its shareholders and directors. It can own property, enter
contracts, sue and be sued in its own name, completely independently of its members.
QUESTION 2
In the landmark case of Salomon v Salomon & Co Ltd [1897], what was the primary
legal principle established?
A) Directors must always act in the best interest of creditors
B) Shareholders are liable for company debts up to the value of their shares
C) A company can only be formed by a minimum of seven members
,D) Courts may always look behind the corporate veil when fraud is suspected
E) A validly incorporated company has a separate legal personality distinct
from its members
CORRECT ANSWER: E
RATIONALE: The House of Lords in Salomon v Salomon conclusively established
that once a company is validly incorporated under the Companies Act, it is a separate
legal person distinct from its members, even where one person effectively controls the
entire company. This remains the foundational principle of company law.
QUESTION 3
Which type of company limits the liability of its members to the amount unpaid on their
shares?
A) Company limited by guarantee
B) Unlimited company
C) Community interest company
D) Charitable incorporated organisation
E) Company limited by shares
CORRECT ANSWER: E
RATIONALE: A company limited by shares is one where the liability of members is
limited to any amount unpaid on their shares. Once a member has fully paid for their
shares, they bear no further liability for the company's debts, making this the most
common form of registered company.
QUESTION 4
What is the main distinction between a public limited company (PLC) and a private
limited company?
,A) A PLC cannot issue debentures while a private company can
B) A private company must have a minimum of 50 shareholders
C) A PLC may offer its shares to the public while a private company may not
D) A private company must have at least two directors
E) A PLC is exempt from filing annual accounts
CORRECT ANSWER: C
RATIONALE: The fundamental distinction is that a PLC is permitted to offer its shares
and debentures to the general public and may be listed on a stock exchange, whereas a
private limited company is prohibited from making such public offers. A PLC must also
satisfy minimum share capital requirements not imposed on private companies.
QUESTION 5
The "veil of incorporation" refers to which of the following?
A) The requirement to publish a company's memorandum publicly
B) The obligation to disclose directors' interests in contracts
C) The process of winding up a company voluntarily
D) The rule that all shareholders must remain anonymous
E) The legal separation between the company as an entity and its individual
members
CORRECT ANSWER: E
RATIONALE: The veil of incorporation is the legal metaphor describing the separation
between the company and its members. It means the company's assets and liabilities
are its own and not those of its shareholders. Courts will generally respect this veil
unless there are grounds for lifting it, such as fraud or sham transactions.
, QUESTION 6
Under which circumstances may a court "lift the corporate veil"?
A) Whenever a company makes a financial loss
B) When a company is newly incorporated
C) When shareholders request a general meeting
D) When the company changes its registered address
E) When the company is used as a sham or to perpetrate fraud
CORRECT ANSWER: E
RATIONALE: Courts will pierce or lift the corporate veil in exceptional circumstances,
including where the corporate form is used as a sham, a facade to evade legal
obligations, or to perpetrate fraud. This was affirmed in Woolfson v Strathclyde Regional
Council [1978] and Prest v Petrodel Resources Ltd [2013], where the Supreme Court
narrowed but preserved this doctrine.
QUESTION 7
A company limited by guarantee is most commonly used for which of the following
purposes?
A) Large-scale manufacturing businesses
B) Companies seeking stock exchange listing
C) Sole traders converting to corporate status
D) Import and export trading companies
E) Charitable, non-profit, and professional membership organisations
CORRECT ANSWER: E
