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ACCA Applied Skills · Corporate and Business Law (Global) · The formation and constitution of a company

Amara and Bilal wish to form a company to run a bakery. They want the company to be a private company limited by shares. Which statement about the effect of this status is correct?

The members' liability is limited to the amount unpaid on their shares. This is the defining feature of a company limited by shares, because the company is a separate legal person. Private companies cannot offer shares to the public, and members are not personally liable for all debts.

  1. AThe company may offer its shares to the general public to raise capital
  2. BThe members' liability for the company's debts is limited to any unpaid amount on their sharesCorrect
  3. CThe company must have a minimum of two directors and fifty members
  4. DThe members are personally liable for all company debts if the company becomes insolvent

Explanation

In a company limited by shares, each member's liability is limited to the amount, if any, unpaid on their shares. Option A describes a public company, which alone may offer shares to the public. Option D contradicts the principle of limited liability. Option C invents minimum numbers.

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