Question

Study the following case/situation and express your opinion.

On 1st Jan, 2018 Mr. John bought 100 shares of TIPS Paints Ltd. The face value of each share was Rs. 10. Mr. John paid the full amount of Rs. 1000. In Dec, 2018 the company suffered a loss of Rs. 10 crores.

a) Can the company ask Mr. John to pay any further money to the company?

b) Which feature of a Joint-stock company is referred to in this example?

c) Explain the feature briefly.

Answer 1

a) Mr. John is a shareholder (member) in TIPS Paints Ltd. His liability is limited up to the unpaid part of the face value of shares held by him. Since he has paid the full amount on the shares he has purchased. The company cannot ask Mr. John to pay any further money to the company as the shares are fully paid-up, there is no further liability on the part of the shareholder.

b) The feature of limited liability of the members or shareholders is referred in the above case.

c)
(1) The term liability means the state of being responsible for something, especially by law. The liability of a shareholder of a joint-stock company is limited to the extent of the face value of the shares held by him. It is limited up to the unpaid part of the face value of shares held by him, the shareholder is liable to pay only the unpaid amount on his shares. If the share amount is fully paid, then there is no further liability on the part of the shareholder.
(2) The company undertakes greater risks because the liability of the members is limited. In the event of liquidation of the company, the personal property of the shareholders cannot be attached by the creditors of the company in settlement of their debts. In such a case the shareholders at the most may lose their investments in the shares of the company.