Financial Accounting II

Previous GDB Solution:

Topic to be tested: 

·         Basic/Fundamental legal document of company

Learning objectives: 

·         To learn about one of the fundamental legal documents of a company required to be produced at the time of company registration in Pakistan, status of members’ liability and recognition of this status through the company’s name.

Discussion Question:

Professionals’ Group Associates (PGA) – a professional promoter has recently conducted a test for its yearly recruitment. In the test, one of the questions was about the name of a prime document providing the status of the “members’ liability” in any company working in Pakistan. This document along with other documents is required for the registration of a joint stock company in Pakistan.

You are required to:

1.       Mention the name of the document carrying the status of “members’ liability”;

2.       Briefly describe the true meaning of “member’s liability”; &

3.       How a company can be recognized as a limited liability company through its name?

Highlights of Correct Solution:

· Memorandum of Association is the basic document which contains different clauses of the company. One of the clauses is Liability Clause, others include Capital clause, Name clause, Registered office Clause, and object clause.

· Liability of members is limited up to the amount of their investment (face value of the share, they own) in Limited Liability Company whereas. In case of company limited by Guarantee the liability of the shareholders is limited up to the amount of their provided guarantee (share’s face value).

· In case of Limited Liability Company the word “Ltd.” is written at the end of the name of a company. The word “Ltd.” recognize the limited liability of a company.