Question

If company's assets are not sufficient to pay its debt then can the balance be recovered from private assets of its members?

Answer 1

No, Normally companies are formed as limited companies. Limited companies means the liability of the member is limited. Members are not required to pay in excess of their liability.

If company is limited by guarantee then members have to pay the unpaid amount guaranteed by them. Means at the time of formation all member determine the amount that would be contribute by them. If any amount is unpaid then they are liable to pay that. If whole amount have been paid then they need not to pay anything.

Where one particular company has been formed for the purpose of defrauding its creditors (Sham companies) and it obviously defaults on its dues, then the Court can lift the Corporate Veil and direct the people behind the company to pay off the dues and settle all the liabilities in relation to that company.

This is an obvious protection to the unsuspecting creditors and a check for those who hide behind the concept of “Separate Legal Entity” and misuse the loopholes in the Law for their unjust benefit.

So, in short, generally the liability of the stakeholders is limited in a company, but it is not conclusive. Where there is a need, that can be overrode and recovery can be made out of the people.