Two years ago, Jimmy and Tommy each contributed $20,000 of capital to form a limited company. However, the company closed down recently since it had run into debt. Also, Tommy declared bankrupt because of personal reasons.
A. Jimmy will lose $40,000 at most.
B. Jimmy will lose $20,000 at most.
C. Jimmy has to repay the personal debt for Tommy.
D. Jimmy has to repay all debts of the company with his personal assets.
I think the answer is option B since Jimmy only contributed $20,000, but I am not sure.
Also, could you please explain why the three wrong answers are wrong and the correct one is correct?
THX!
Economic question (about the liability of the shareholders of a limited company)?
2011-06-05 5:08 pm
回答 (2)
2011-06-05 5:10 pm
✔ 最佳答案
limited liability means you only lose what you invested in the company..since he only invested 20,000 in the beginning, thats the maximum he would be able to lose
2011-06-06 1:00 am
A is wrong as Jimmy has not contributed $ 40000/-. He is liable to the extent of his contribution which is $ 20000/-.
C is wrong as Jimmy has no dealings with Tommy. Both Jimmy and Tommy are independent shareholders in the company and are responsible to the extent of their contribution.
D. Jimmy and Tommy are not in a partnership business. If they had a partnership in which the liability of each partner becomes unlimited, then this would have been correct. In a limited company, as the word "limited" suggests, the liability is limited to the extent of share in the company and the shareholder will not have to part with any of his other investments or properties even if the company makes a debt 10 times his share. The shareholder's liability is limited to his contribution and not beyond that.
In fact, if the company is closed, then after meeting the debt, if anything is left, the shareholder will back part of his investment from the left over in proportion to his share in the company.
When a company is closed, its shareholder may lose his entire investment or may get a part of it back, but he never is required to contributed any further beyond his original contribution.
C is wrong as Jimmy has no dealings with Tommy. Both Jimmy and Tommy are independent shareholders in the company and are responsible to the extent of their contribution.
D. Jimmy and Tommy are not in a partnership business. If they had a partnership in which the liability of each partner becomes unlimited, then this would have been correct. In a limited company, as the word "limited" suggests, the liability is limited to the extent of share in the company and the shareholder will not have to part with any of his other investments or properties even if the company makes a debt 10 times his share. The shareholder's liability is limited to his contribution and not beyond that.
In fact, if the company is closed, then after meeting the debt, if anything is left, the shareholder will back part of his investment from the left over in proportion to his share in the company.
When a company is closed, its shareholder may lose his entire investment or may get a part of it back, but he never is required to contributed any further beyond his original contribution.
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