The Difference between Limited & Unlimited Liability

Differences between limited and unlimited liability can mean a mountain of money. When you decide to put your hard-earned money up to back a company or other investment such as land or development, it's important to check just what sort of liability you have. Limited liability is safer than unlimited liability, but sometimes you have to make a risky investment to get a big payoff. Other People Are Reading

Limited Liability & Unlimited Liability How to Distinguish Between a Limited Liability Company & an Unlimited Liability Company

1. Limited Liability
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Limited liability is a safer investment option for most people. When an investment comes with limited liability, it means you can lose only up to the amount you put in on that investment. This gives investors some assurance that even if the investment goes belly-up, their loss will end there.

Unlimited Liability
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When an investment has unlimited liability, that means that there is no limit to the amount that you can lose. For instance, if you invest $1,000 or $1 million, there's no guarantee you'll get any of that money back if the investment tanks. However, if the investment has unlimited liability, it might reach into your coffers and take out even more.

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Obligation
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The difference between these two investments is really your obligation. With limited liability you're just providing funds for a company to use, and once it goes through that money, your obligation ends. With an unlimited liability investment, you are considered to be part of the company. As such you are like its parent--if the company burns through its allowance, you still have to pay its debt because you're partially responsible for the company.

Safety
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Limited liability investments are by far the safer of the two. As long as you don't offer up more money than you can afford to lose, you should be perfectly fine even if the company nose-dives into the red. Unlimited liability doesn't offer you this protection, but it does offer other sorts of benefits.

Profits
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The upside of an unlimited liability investment is that you get a bigger share of the profits if the company does well. Because you took a bigger risk and you are a part of the company, you are entitled to a bigger rate of return. Limited liability investors won't have that sort of reward, and they're usually guaranteed nothing more than a small rate of return on their original investment.

Difference between a Public Company and a Private company

The distinction between a public company and a private company are explained in the following manner: 1. Minimum number of members The minimum number of person required to form a public company is seven, whereas in a private company their number is only two. 2. Maximum number of members There is no limit on the maximum number of member of a public company, but a private company cannot have more than fifty members excluding past and present employees. 3. Commencement of Business A private company can commence its business as soon as it is incorporated. But a public company shall not commence its business immediately unless it has been granted the certificate of commencement of business. 4. Invitation to public A public company by issuing a prospectus may invite public to subscribe to its shares whereas a private company cannot extend such invitation to the public.

5. Transferability of shares There is no restriction on the transfer of share In the case of public company whereas a private company by its articles must restrict the right of members to transfer the share. 6. Number of Directors A public company must have at least three directors whereas a private company may have two directors. 7. Statutory Meeting A public company must hold a statutory meeting and file with the register a statutory report. But in a private company there are no such obligations. 8. Restrictions on the appointment of Directors A director of a public company shall file with the register a consent to act as such. He shall sign the memorandum and enter into a contact for qualification shares. He cannot vote or take part in the discussion on a contract in which he is interested. Two-thirds of the directors of a public company must retire by rotation. These restrictions do not apply to a private company. 9. Managerial Remuneration Total managerial remuneration in the case of public company cannot exceed 11% of net profits, but in the case of inadequacy of profit a minimum of Rs. 50, 000 can be paid. These restrictions do not apply to a private company. 10. Further Issue of Capital A public company proposing further issue of shares must offer them to the existing members. A private company is free to allot new issue to outsiders.

11. Name Why Some Company Used Word Limited and some are do not? A private company has to use words private limited at the end of its name. But a public company has to use only the word Limited at the end of its name. Only Public Companies as defined in Section 3(i)(iv) of companies act 1956 can use word limited in their name. Private Companies Only Public Companies as defined in Section 3(i)(iv) of companies act 1956 can use word limited in their name. Private Companies shall use private limited at the end of their name and it is optional for the companies registered under section 25 of the Companies act 1956 to use word limited. Section 2(3) in The Companies Act, 1956

(3) " Associate", in relation to a managing agent, means any of the following, and no others:(a) Where the managing agent is an individual. any partner or relative of such individual; any

firm in which such individual, partner or relative is a partner; any private company of which such individual or any such partner, relative or firm is the managing agent or secretaries and treasurers or a director or the manager; and anybody corporate at any general meeting of which not less than one- third of the total voting power in regard to any matter may be exercised or controlled by any one or more of the following, namely, such individual, partner or partners, relative or relatives, firm or firms; and private company or companies; (b) Where the managing agent is a firm: any member of such firm; any partner or relative of

any such member; and any other firm in which any such member, partner or relative is a partner; any private company of which the firm first mentioned, or any such member, partner, relative or other firm is the managing agent, or secretaries and treasurers, or a director, or the manager; and anybody corporate at any general meeting of which not less than one- third of the total voting power in regard to any matter may be exercised or controlled by any one or more of the following, namely, the firm first mentioned, any such member or members, partner or partners, relative or relatives, other firm or firms and private company or companies; (c) where the

managing agent is a body corporate: (i) any subsidiary or holding company of such body corporate; the managing agent or secretaries and treasurers, or a director, the manager or an officer of. the body corporate or of any subsidiary or holding company thereof; any partner or relative of any such director or manager; any firm in which such director, manager, partner or relative, is a partner; (ii) Any other body corporate at any general meeting of which not less than one- third of the

total voting power in regard to any matter may be exercised or controlled by any one or more of the following, namely, the body corporate and the companies and other persons specified in paragraph (i) above; and (iii) Any subsidiary of the other body corporate referred to in paragraph (ii) above: Provided

that where the body corporate is the managing agent of the other body corporate referred to in paragraph (ii) above, a subsidiary of such other body corporate shall not be an associate in relation to the managing agent aforesaid (d) Where the managing agent is a private company or a body corporate having not more

than fifty members: in addition to the persons mentioned in sub clause (c), any member of the private company or body corporate; Explanation.- If one person is an associate in relation to another within the meaning of this clause, the latter shall also be deemed to be an associate in relation to the former within its meaning;

Reference
www.wikipedia.com https://www.google.com/#hl=en&tbo=d&biw=1024&bih=629&sclient=psyab&q=Some+company+used+word+Limited+why&oq=Some+company+used+word+Li mited+why https://www.google.com/#hl=en&tbo=d&output=search&sclient=psyab&q=difference%20between%20limited%20and%20unlimited%20government https://www.google.com/#hl=en&tbo=d&spell=1&q=1956+partnership+company+act+s ection