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CS Executive · Setting Up of Business, Industrial and Labour Laws · Selection of Business Organization

Nisha is comparing a company limited by shares with a partnership firm. Which statement about the liability of members of a company limited by shares is correct?

In a company limited by shares, a member's liability is limited to the amount, if any, unpaid on the shares held. Once the shares are fully paid, the member owes nothing further towards the company's debts, unlike partners in an ordinary firm.

  1. AEach member is liable only up to the amount unpaid on the shares heldCorrect
  2. BEach member is liable without limit for all company debts
  3. COnly the directors bear liability, never the members
  4. DMembers are liable up to the amount they agreed to contribute on winding up, regardless of shares

Explanation

In a company limited by shares, a member's liability is limited to the amount unpaid on the shares held. Unlimited liability describes partners in an ordinary firm. Option 4 describes a company limited by guarantee. Option 3 is wrong because directors are not the only ones with any liability.

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