Extent of Liability of Members in a Company Limited by Guarantee

In a company limited by guarantee, the liability of its members is limited to the amount they undertook to contribute in the event of winding up. This means that the members of such a company are not personally responsible for the company's debts and liabilities beyond the specified amount they agreed to contribute.

Explanation:

1. Company Limited by Guarantee:
A company limited by guarantee is a type of legal entity commonly used by non-profit organizations, charities, and other similar entities. Unlike a company limited by shares, which has shareholders, a company limited by guarantee has members who act as guarantors and provide a guarantee to contribute a specified amount towards the company's debts in the event it is wound up.

2. Nature of Liability:
In a company limited by guarantee, the liability of its members is considered to be limited. This means that the personal assets of the members are protected, and they cannot be held personally liable for the company's debts and obligations.

3. Amount of Liability:
The extent of the liability of the members in a company limited by guarantee is determined by the amount they undertook to contribute in the event of winding up. When becoming a member of such a company, each member agrees to contribute a specific amount towards the company's liabilities in the event it is wound up.

4. Winding Up:
Winding up refers to the process of liquidating a company's assets and distributing the proceeds to its creditors and members. If a company limited by guarantee is unable to pay its debts and is forced to go into liquidation, the members are only liable to contribute the amount they agreed to provide during their membership.

5. Limited Liability:
The limited liability of members in a company limited by guarantee provides a level of protection and encourages individuals to become members and support such organizations without the fear of personal financial risk.

Conclusion:

In conclusion, in a company limited by guarantee, the liability of its members is limited to the amount they undertook to contribute in the event of winding up. This means that the members are not personally responsible for the company's debts and obligations beyond the specified amount they agreed to contribute. This limited liability provides protection to members and encourages their involvement in non-profit organizations and charities.