In relation to company law:（a) explain the meaning of limited liability. （3 marks)（b) Expl

参考答案：This question requires candidates to explain the concept of limited liability and to consider three alternative categories of companies;the fi rst unlimited in nature, whilst the second and third are limited in different ways.(a) In this context, liability refers to the extent to which shareholders in companies are responsible for the debts of their companiesand limited liability indicates that a limit has been placed on such liability. The point is that the limitation on liability is enjoyedby the member shareholders rather than the company. One of the major advantages of forming a company is that the membersof the company may achieve limited liability. The great majority of registered companies are limited liability companies. Thismeans that the maximum liability of shareholders is fi xed and cannot be increased without their agreement. As will be seenbelow there are two ways of establishing limited liability.(b) Section 3 of the Companies Act (CA) 2006 sets out the various types of companies that can be registered in term of differentliabilities.(i) Companies can be formed without limited liability. These, by virtue of s.3(4) CA 2006, are referred to as unlimitedcompanies. Such companies are incorporated under the Companies Acts and receive all the benefi ts that fl ow fromincorporation except limited liability. Consequently the shareholders in such unlimited companies remain liable to thefull extent of their personal wealth for any unpaid debt of the company. It should be noted that, in line with the doctrineof separate personality, even in the case of unlimited companies any subsequent debt is owed to the company and notdirectly to the creditors of the company. The compensating benefi t enjoyed by such companies is that they do not have tosubmit their accounts and make them available for public inspection.(ii) The company limited by guarantee (s.3(3) CA 2006) is usually restricted to non-trading enterprises such as charities andprofessional and educational bodies. It limits the shareholders’ liability to an agreed amount which is only called on if thecompany cannot pay its debts on being wound up. In reality, the sum guaranteed is usually a nominal sum, so no realrisk is involved on the part of the guarantor.(iii) The more common procedure is to limit liability by reference to shares (s.33(2)). The effect of this is to limit liability to theamount remaining unpaid on shares held (Insolvency Act 1986 s.74(2)(d)). If the shareholder has paid the full nominalvalue of the shares to the company, then that is the end of responsibility with regard to company debts. Consequently, ifthe company should subsequently go into insolvent liquidation the shareholders cannot be required to contribute to itsassets in order to pay off its outstanding debts.