ABSTRACT
If, as is usual, a company is formed with limited liability, the liability of its individual members is limited to the amount which the member has agreed to subscribe. Thus if a member has agreed to take 100 shares of £1 each, that represents the extent of his liability. If he has actually paid for his shares, he has no further liability should the company go into liquidation. Note that persons who are asked to lend money to private companies often ask the controlling shareholder(s) to guarantee repayment of the loan (the legal form by which this is done is called an indemnity). This means that, in effect, the benefit of limited liability is lost in respect of the loan. It is also not uncommon for landlords to ask for such guarantees when renting premises to the company. It is, however, unusual for ordinary trade creditors to ask for such guarantees so that if the directors of a small company can avoid giving guarantees to creditors such as banks, they can trade with little or no risk to their own private assets should the company become insolvent.
