All Exams Test series for 1 year @ ₹349 only
Question

Which of these is a kind of company categorised on the basis of liability of shareholders or members ?

The correct answer is

Unlimited Company

Categorizing Companies by Shareholder Liability

Companies can be categorized in many ways, including on the basis of their legal structure, size, control, and importantly, the liability of their shareholders or members. The question asks about a company type specifically defined by the liability of its members.

Based on the liability of shareholders or members, companies are primarily classified into three types:

  1. Company Limited by Shares: In this type, the liability of each member is limited to the unpaid amount on the shares they hold. If the shares are fully paid up, their liability is nil.
  2. Company Limited by Guarantee: In this type, the liability of members is limited to the amount they guarantee to contribute to the company's assets in the event of it being wound up. This type is common for non-profit organizations.
  3. Unlimited Company: In this type, there is no limit on the liability of the members. The members are liable for the debts of the company without any limit, similar to partners in a partnership firm, but unlike a partnership, the company has a separate legal entity.

Let's consider the options provided:

  • Private Company: This is a classification based on restrictions on share transfer, number of members, and public invitation. While private companies are typically limited by shares, their classification is not primarily based on the *nature* of liability being unlimited or limited by guarantee, but rather on these other factors.
  • Public Company: This is a classification based on the ease of share transfer and invitation to the public. Like private companies, public companies are usually limited by shares, but their classification is not based on the nature of liability itself.
  • Unlimited Company: As discussed above, this is a direct classification based on the fact that the liability of its members is unlimited. This directly addresses the criterion mentioned in the question: categorization based on the liability of shareholders or members.
  • Government Company: This is a classification based on the shareholding percentage by the government. Government companies are usually limited by shares. Their classification is based on ownership, not the fundamental nature of member liability being limited or unlimited.

Therefore, the type of company categorized primarily on the basis of the unlimited liability of its shareholders or members is the Unlimited Company.

Was this answer helpful?

Important Questions from Corporate Accounting

  1. Acquisition of firms is the same as:

    (a) a merger

    (b) an amalgamation

    (c) a takeover

    (d) an absorption

    Select the correct code.

  2. A concept given for diversified corporations which advocates (a) What businesses should a diversified corporation own and why; and (b) What organizational structure, management processes, and philosophy will foster superior performance from the corporation’s individual business units, is known as:

  3. A letter of acceptance sufficiently stamped and duly addressed is put into the course of transmission. There is a _______.

  4. An agent is personally liable to third parties in which of the following situations?

    A. If an agent acts for an undisclosed Principal

    B. Trade usage and customs make the agent personally liable

    C. If an agent signs a contract in the Principal's name

    D. If an agent acts for the named Principal

    E. If an agent works for a foreign Principal.

    Choose the correct answer from the options given below:

  5. An approach to corporate strategy in which top management views its product lines and business units as a series of investments from which it expects a profitable return is called ________

Need Expert Advice?

Start Your Preparation with Prepp Mobile App

Download the app from Google Play & App Store
Download the app from Google Play & App Store
Prepp Mobile App