What does the term “Limited Liability” mean?

At incorporation, it is required that every company be registered either as a private company or public company. Where a company is registered as a private company Limited by shares, the members of the company are required to take what is known as shares. This represents their value in the company or the asset in which they have in the company. A member of a company can be called a shareholder or a subscriber because he has a share in the company. However, the shares are Limited to the amount in which they subscribed to.

Accordingly, the term “Limited Liability” in Section 21(1a) of the Companies and Allied Matters Act(CAMA) as a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them. What this entails is that the Liability which is the shares subscribed to by the members  of the company is limited to the extent in which they subscribe in the event of liquidation or winding up if any of the shares is unpaid.

The subscription of shares in a limited liability company during incorporation does not necessarily mean that the subscribers are to bring the exact value in monetary sum, but simply means what the subscriber intends to contribute as his value in the company. This can be unpaid during the course of operation of the business but the subscriber would be required to contribute same should the company be wound up or Liquidated.

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