Companys debts, Business Law and Ethics

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Companys debts:

In case a company is unable to pay its debts the creditors, or a creditor, may petition the High Court for an order to wind it up. During the winding up the members will be called upon to pay the amount which is unpaid on the shares they hold, if any, in the case of a company limited by shares, or the amount prescribed by the memorandum, in the case of a company limited by guarantee.

It should be noted that, in the case of a company limited by shares, what the members are paying are the amounts they owe to the company as its debtors in respect of shares that were sold to them on credit and have not been paid for in full. The company's liquidator will in turn use the money so paid to pay off, or reduce, the company's debts.

The other point to be noted is that a company's creditor cannot institute legal proceedings against a company's member in order to recover from him what he owes the company. This is because the member does not, legally,become his debtor merely because the company is his debtor.


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