XYZ Ltd took a loan of 50 lakhs from a bank for its growth and expansion plans the company was unable to repay the loan amount because of heavy losses incurred in the business on a continuous basis the management of the company ask it shareholders to contribute towards repayment of the loan but the shareholders refuse has they had already paid full amount on their shares, the bank file a case against XYZ Ltd in the court, The court held that the shareholders of the company were not liable to repay the loan has they had already paid amount on their shares.
Ques-A: Is the court decision justified? Give reason in support of your answer.
Ques-B: Which characteristics of the company form of organisation protected the shareholders? Explain.
Dear Student,
Ans A: Yes, the decision of the court is justified as the liability of the shareholders of the company is limited to amount unpaid on the shares held by them (if any). The creditors can use only the assets of the company to settle their claims since it is the company and not the members that owes the debt.
Ans B: LIMITED LIABILITY characteristic of the company protected the shareholders. According to it, The liability of the members is limited to the extent of the capital contributed by them in a company. The creditors can use only the assets of the company to settle their claims since it is the company and not the members that owes the debt. The members can be asked to contribute to the loss only to the extent of the unpaid amount of share held by them.
Regards
Ans A: Yes, the decision of the court is justified as the liability of the shareholders of the company is limited to amount unpaid on the shares held by them (if any). The creditors can use only the assets of the company to settle their claims since it is the company and not the members that owes the debt.
Ans B: LIMITED LIABILITY characteristic of the company protected the shareholders. According to it, The liability of the members is limited to the extent of the capital contributed by them in a company. The creditors can use only the assets of the company to settle their claims since it is the company and not the members that owes the debt. The members can be asked to contribute to the loss only to the extent of the unpaid amount of share held by them.
Regards