Question

“In a joint stock company, the liability of the members are unlimited.” Justify this statement for and give a reason.

Answer 1

In a joint stock company, the liability of members is not unlimited but limited. This means that stockholders are only responsible for the unpaid value of the shares they own. For example, if a person holds ₹5,000 shares and has previously paid ₹ 4,000, their maximum liability is ₹ 1,000. Their personal property cannot be utilised to repay company debts.

Thus, limited liability protects shareholders, encourages investment, and ensures that risks are confined only to the amount invested in the company.