LEGAL VIEWPOINT: Features of limited liability in companies – L.C.C

Dr. AbdelGadir Warsama – Legal Counsel
Asia 728x90

During the earlier stages of corporate business activities, there used to be no segregation between the personal assets of the person and his non-personal corporate assets. To elaborate, suppose a partner \ shareholder in a company holds shares of BD 10000, and on top of which he saves BD 100000 in a bank. Herein, in case something goes wrong with the company, the partner \ shareholder will be fully liable and all his money in the saving account, or otherwise, will be in jeopardy and could be taken to cover the company’s financial woes.

Due to this, many business entities and individuals were affected and have suffered great financial loses in addition to other personal set-backs. This situation led to the adoption of the concept of “limited liability” responsibility, which marks a cornerstone in the business venture and company laws.

According to the concept of limited liability company L.L.C, (here they are using with limited liability – W.L.L), which has been established in the famous case of (Simons vs. Simons) before the High Court in London, the liability of the partner \ shareholder shall only be limited up to his equity shareholding in the company, thus protecting his other assets from being taken over to cover the liability of the company. The new concept makes clear distinction between the person and the company he is having shares. In other words the difference between, the natural person and the juristic person, as they are different persons.

This legal principle clearly segregates between certain specific money used as equity shareholding and any other money owned by the same partner. The partner \ shareholder shall become liable only in relation to that certain specific portion of money invested in the company. According to this his other money or assets, if any, shall be free and shall not be used for any purpose whatsoever to meet the liabilities of the company (the juristic person).

The type of limited liability companies has been widely used worldwide and is one of the types allowed according to the company law in this country. A partner, or a company, may opt not to go for limited liability and accordingly this makes their legal liability unlimited and all their assets will be at stake and can be made at the disposal of third parties claiming liabilities against the company.

It goes without saying that there are pros and cons for each type of companies. From a business perspective, a limited liability company with little capital may not attract certain

projects wherein it is preferred to have business with entities of unlimited liability so as not to face or encounter any difficulties to get the required compensation in case of failure or nonfulfillment of contractual obligations. This leads us to say that unlimited liability companies, particularly joint stock companies will be in a better shape and competitive position in relation to strategic or major projects wherein they are mostly (if not in all cases) given priority.

In most places, the number of the partners in limited liability companies shall not exceed certain number of partners \ shareholders. This could be taken as a negative point because this limitation closes the door for new blood to join forces and invest additional money and ideas in the company. Over exceeding the limited number of partners, whenever applicable, constitutes clear violation to the law, and the competent authority is empowered to dissolve the company due to this violation.

Generally, there are pros & cons with reference to establishing any company. However, with particular reference to limited liability companies such pros & cons should be closely taken in consideration at the time of establishing such type of companies.

Dr. AbdelGadir WarsamaLEGAL COUNSEL / Africanewsanalysis