I receive a question on Quora which may interest readers of this Blog. The question is –
“What is limited in private limited company? I understand limited means limited liability but can someone explain with a detailed example about how this liability turns out to be limited. Please use numerical in the example. Lets consider 4 owners, each one has 25% stake in the company & the total investment is say 1 lac INR.”
Posted in Chapter II - CA2013, Companies Act 2013, Investor Education, Truth of Our Time
Tagged investors education, Invrstors, liability, limited company, Limited liability, Members, private limited company, shareholders, Unlimited Company
What is benefit of incorporating of a company? One of most important benefit of incorporation is limiting risk of liability.
In case of traditional form of businesses; proprietor, partnership or family businesses; there is no concept of limited liability. An owner or part – owner is responsible to pay all business debt even from its own pocket. We always know, business money (galla) is different from personal money. But, owner of a business remains in risk of liabilities towards creditors and government personally.
What is significant of word “limited” in name of a business organization?
In rural and semi urban India, this is a majority opinion that risk of a person dealing with is limited. Such persons may be petty investors, public depositors, unemployed youth, farmer, retired citizens, daily wagers and all potential victims of corporate criminals. I have met many persons, who support this limited risk perception. I have no idea about source of such wrong information.