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    Thursday, 12 January 2017

    Duties and Liabilities of shareholders

    The duties and liabilities of share-holders are of two types

    1. Statutory Liabilities
    Statutory Liabilities are those which are imposed on the shareholders by the company’s ordinance, 1984.

    2. Contractual Liabilities
    Contractual liabilities are those which are laid down in the article of association of the company.
    The important contractual liabilities are as under

    i. Call Liability to pay call
    A shareholder of accompany limited by shares is liable only to the extent of amount unpaid on his shares. The term call refers to some installments. The mode of payment of share money is generally laid down in the Articles of association of the company. Suppose if the share is of Rs. 100, Rs. 10 on application, and Rs. 20 on allotment and another Rs. 20 in one month’s time and the balance when even called for. So each of the above installments is known as call and the balance is called uncalled share capital.

    The directors can make a call for the balance money after passing a resolution in the Board’s meeting and according to the manner specified in the Articles. If a call in invalid, the share-holders need not to pay. A call must be made uniformly and a call made on some members or share-holders only, is invalid.

    ii. Liability of forfeiture
    The director has a right granted by the articles to declare the share of any member or share-holder forfeited. Generally the shares are forfeited for default to pay on calls or for other valid reasons and with the sanction of the court.

    iii. Surrender
    The article of the company empowers the directors to accept surrender of shares. Surrender of shares means, the reduction of capital. Partly paid up shares when surrendered would means diminution of capital. Such surrender is void. Fully paid-up share when surrendered and if accepted in the interest of the company is valid.

    iv. Lien
    It means the right of taking into possession of another’s property for realization of some debts from that another person. The articles provide that the company shall have first lien on the shares of the members for their debts and liabilities to the company. If share-holder becomes indebted to the company prior to the mortgage, the lien of the company will prevail over the mortgage.

    Statutory Liability of shareholders
    Following are the liabilities of share-holders

    i. Liability of share-holders in respect of reduced shares
    a. A member of the company shall not be liable in respect of any share to any call or contribution exceeding in amount paid on the shares and the amount by the shares as fixed by the minutes.
    b. Nothing in this section shall affect the rights of the contributions among themselves.

    ii. Liability of share-holders in case 66 Liquidation
    a. In the event of a company being wound up, every past or present share-holder shall subject to the provisions of this section be liable to an amount sufficient for payment of its debts and liabilities and the costs, charges and expenses of the winding up and for the adjustment of the rights of the contributories among themselves with the following qualifications

    a-i. A past member shall not be liable to contribute if he has ceased to be a member for one year or more before the commencement of the winding up.


    a-ii. A past member shall not be liable to contribute in respect of any debt or liability of the company contracted after he ceased to be a member.

    a-iii. A past member shall not be liable to contribute unless it appears to the court that the existing members are unable to satisfy the contributions required to be made by them in pursuance of ordinance 1984.

    iv. In case of a company .limited by shares no contribution shall be required from any member exceeding the amount unpaid on the shears in respect to which he is liable as a present or past member.

    v. In case of a company limited by guarantee, no contribution shall be required from any member exceeding the amount undertaken to be contributed by him to the assets of the company in the event of its being wound up.

    vi. Nothing in this act shall invalidate any provision contained in any policy of insurance or other contract whereby the liability of individual member on the policy or contract is restricted or whereby the founders of the company are alone mad reliable in respect of the policy or contract.

    b. In winding up a company limited by guarantee every member of the company shall be liable, in addition to the amount undertaken to the contributed by him to the assets of the company in the event of it being wound up, to contribute to the extent of any sum unpaid on the shares held by him.

    Position of a child as a member

    A child may be a member, subject to his rights to repudiate shares when he attains majority. However, no application of child can be entertained, as under the contract act, all contracts of child, except for necessaries, are void. The guardian of a child may, of course, contract on his behalf but as there may be grounds on which a child on attaining majority may repudiate his shares, there is some risk in making allotments in favor of a child. 
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    Item Reviewed: Duties and Liabilities of shareholders Rating: 5 Reviewed By: Usman Ali
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