Commercial Applications
Why is the principle of limited liability important for shareholders in a joint stock company?
- It allows shareholders to transfer shares freely.
- It restricts the financial loss of shareholders to the unpaid value of shares.
- It ensures shareholders participate in daily management.
- It makes shareholders responsible for company debts.
Joint Stock Company
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Answer
It restricts the financial loss of shareholders to the unpaid value of shares.
Reason — The principle of limited liability is important because it restricts the financial loss of shareholders to the nominal/unpaid value of shares held by them. Even if the assets of the company are insufficient to satisfy the claims of the creditors, no member can be called to pay anything more than what is due from him. The personal property of shareholders cannot be attached to meet the company's debts. This encourages people to invest money in a company without fear of unlimited loss.
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