BL – Nov 2015 – L2 – SB – Q1c – Company Law

Describe two consequences of a company's winding-up on its shareholders.

Question

When a company is wound-up, there are consequences that affect the shareholders of the company.

Required:

Explain briefly TWO consequences of the winding-up of a company on the shareholders.
(4 Marks)

Answer

Loss of Investment: Shareholders may lose the value of their investment in the company, as the company’s assets will be liquidated to pay off creditors first. Shareholders, especially ordinary shareholders, are last in the order of priority for any remaining funds.
No Further Liabilities: Once the company is wound up and its assets are liquidated, the shareholders are no longer liable for the company’s debts, except for any unpaid amounts on their shares (in the case of partially paid shares).