Types of Company on the Basis of Liability

Types of Company on the Basis of Liability Limited liability Company When the liability of the members of a company is limited to the extent of the n…

Shivani Bhati

Jan 28, 2022

Last update on Jan 28, 2022

Types of Company on the Basis of Liability

Limited liability Company

When the liability of the members of a company is limited to the extent of the nominal value of shares held by them, such companies are known as ‘Limited liability companies. Companies limited by Shares- Where the liability of the members of a company is limited by the Memorandum of Association to the amount which remains unpaid on the shares. In case of winding up of the company the members cannot be asked to pay more than the amount unpaid on the shares held by them. A company limited by shares may be a public company or a private company. Limited by Guarantee not having share capital- In this type of companies the memorandum of Association limits the members’ liability. It will be based on the undertaking that has been given in MOA for their contribution in case of a winding up. Limited by guarantee having share capital- In such cases, the liability would be based on the MOA towards the guaranteed amount and the remaining would be from the unpaid sums of the shares held by the person concerned.

Unlimited Company

There is no limit on the liability of the members. The liability in such cases would extend to the whole amount of the company’s debts and liabilities. Here the members cannot be directly sued by the creditors. When the company is wound up, the official liquidator will call upon the members to discharge the liability. The details of the number of members with which the company is registered and the amount of share capital has to be stated in the Articles of Association (AOA).