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CS Executive · Setting Up of Business, Industrial and Labour Laws · Corporate Entities - Companies

Sunrise Textiles Pvt Ltd has Rs 5 lakh paid-up capital and its members' liability is limited to the amount unpaid on their shares. How is this company classified on the basis of liability?

It is a company limited by shares, because the liability of its members is restricted to the amount, if any, unpaid on the shares they hold. Guarantee companies and unlimited companies are defined by different liability arrangements.

  1. ACompany limited by sharesCorrect
  2. BCompany limited by guarantee
  3. CUnlimited company
  4. DCompany limited by guarantee with share capital

Explanation

Where the liability of members is limited to the amount unpaid on shares held by them, the company is a company limited by shares. A guarantee company limits liability to the amount members undertake to contribute on winding up. An unlimited company has no limit on members' liability.

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