Question:
The liability of equity shareholders is .
(Choose the correct option to fill up the blank)
The liability of equity shareholders is .
(Choose the correct option to fill up the blank)
(Choose the correct option to fill up the blank)
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Think of the word 'limited' in the name of a company: Pvt. Ltd. and Ltd.
Updated On: Nov 3, 2026
- Limited
- Zero
- Unlimited
- Equal
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The Correct Option is A
Solution and Explanation
Step 1: Understand the question:
A company is owned by its shareholders. Equity shareholders are the owners who buy equity shares.
The question asks how far an equity shareholder is responsible if the company cannot pay its debts.
Step 2: Recall the key idea:
A company is a separate legal person. Its debts belong to the company and not to its owners.
A shareholder has to pay only the face value of the shares he holds. If part of the price is still unpaid, he must pay that part when called. Nothing more can be asked from him.
This is called limited liability.
Step 3: Work it out with a small example:
Suppose Ravi holds 100 shares of Rs. 10 each and has paid Rs. 7 per share. The unpaid amount is Rs. 3 per share.
The most the company can ask from Ravi is 100 x 3 = Rs. 300. His house, car and savings are safe.
Step 4: Check option (A) Limited:
This matches the idea above, so (A) is correct.
Step 5: Check option (B) Zero:
Liability is not zero. A shareholder must pay the full price of the shares he holds, and the unpaid part can be called. So (B) is wrong.
Step 6: Check option (C) Unlimited:
Unlimited liability belongs to a sole proprietor and to partners of a firm. Their private property can be used to clear business debts. This is not true for shareholders, so (C) is wrong.
Step 7: Check option (D) Equal:
Liability depends on the number of shares held, so it is different for different people. 'Equal' is not a type of liability at all. So (D) is wrong.
Final Answer:
Equity shareholders have limited liability. This is option (A). \[ \boxed{\text{Option (A): Limited}} \]
A company is owned by its shareholders. Equity shareholders are the owners who buy equity shares.
The question asks how far an equity shareholder is responsible if the company cannot pay its debts.
Step 2: Recall the key idea:
A company is a separate legal person. Its debts belong to the company and not to its owners.
A shareholder has to pay only the face value of the shares he holds. If part of the price is still unpaid, he must pay that part when called. Nothing more can be asked from him.
This is called limited liability.
Step 3: Work it out with a small example:
Suppose Ravi holds 100 shares of Rs. 10 each and has paid Rs. 7 per share. The unpaid amount is Rs. 3 per share.
The most the company can ask from Ravi is 100 x 3 = Rs. 300. His house, car and savings are safe.
Step 4: Check option (A) Limited:
This matches the idea above, so (A) is correct.
Step 5: Check option (B) Zero:
Liability is not zero. A shareholder must pay the full price of the shares he holds, and the unpaid part can be called. So (B) is wrong.
Step 6: Check option (C) Unlimited:
Unlimited liability belongs to a sole proprietor and to partners of a firm. Their private property can be used to clear business debts. This is not true for shareholders, so (C) is wrong.
Step 7: Check option (D) Equal:
Liability depends on the number of shares held, so it is different for different people. 'Equal' is not a type of liability at all. So (D) is wrong.
Final Answer:
Equity shareholders have limited liability. This is option (A). \[ \boxed{\text{Option (A): Limited}} \]
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