Question

XYZ Ltd. took a loan of ` 50 lakh from a bank for its growth and expansion plans. The company was unable to repay the loan amount because of heavy losses incurredin the business on a continuous basis. The managementof the company asked its shareholders to contribute towards repayment of the loan. But the shareholdersrefused as they had already paid the full amount due ontheir shares. The bank filed a case against XYZ Ltd. in the court. The court held that the shareholders of thecompany were not liable to repay the loan as they had not unpaid amount on shares.

(a) Is the court’s decision justified? Give reason in support of your answer.

(b) Which characteristic of the company form of organisation protected the shareholders? Explain.​

Answer 1

Answer:

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).