LLC / Limited Liability Company Defined

The privilege of limited liability for business debts is one of the principal advantages of doing business under the corporate form of organization. Limited liability means the status of being legally responsible only to a limited amount for debt of a company.

The company, being a separate person, is the owner of its assets and bound by its liabilities. The liability of a member as shareholder extends to contribution to the assets of the company up to the nominal value of the shares held and not paid by him. Members, even as a whole, are neither the owners of the company’s undertakings, nor liable for its debts. In other words a shareholder is liable to pay the balance, if any, due on the shares held by him, when called upon to pay and nothing more, even if the liabilities of the company far exceed its assets.

This means that the liability of a member is limited. For example, if A holds shares of the total nominal value of Rs.1,000 and has already paid Rs.500/-(or 50% of the value) as part payment at the time of allotment, he cannot be called upon to pay more than Rs.500/-,the amount remaining unpaid on his shares. If he holds fully paid shares, he has no further liability to pay even if the company is declared insolvent. In the case of a company limited by guarantee, the liability of members is limited to a specified amount mentioned in the memorandum.


Legal Ace