CAF-4 · Chapter 16 · Question 6 of 10
Zahid and 22 of his friends have pooled their money to start a large-scale trading business for mutual profit. They are operating based on an informal verbal understanding without registering any entity. What is the legal status of their business under the Companies Act, 2017?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It is an illegal association because any business for gain with more than 20 persons must be registered as a company.
Explanation
When more than 20 persons get together for the purpose of carrying on any business for gain, such business is mandatorily required to be registered as a company. Failure to do so makes it an illegal association.
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