Rights of Stockholders
Liabilities and rights of shareholders
A company has an independent legal existence of its own, quite distinct from that of its shareholders. This means that a company can, without in anyway involving its shareholders, enter into contracts, buy, sell and own property, engage in litigation, or
incur debts. A shareholder cannot be held personally responsible or liable for the actions of a company, or any of its directors or employees. The liability of the shareholder to his company is limited to the value of the share he holds in the company.
This is a purely financial liability which is fully discharged when the shares are bought it ceases to exist after that. This means that if you buy 100 shares of face value Rs. 10 each in XYZ Ltd., then your financial liability to the company is Rs. 1,000 which is fully discharged by you on the purchase of these shares. Thereafter, if XYZ Ltd. becomes bankrupt and goes into liquidation, the worst that can possibly happen to you is that the price of your shares may fall to zero and you may not be able to recover your initial investment of Rs. 1,000. Under no circumstances can you be asked to pay any additional money to XYZ Ltd. or to its creditors. This is the essence of the concept of "limited liability". Alt companies are required by law to use the word "Limited" (or its common abbreviation "Ltd.") after their names to show that the financial liability of its shareholders is limited. So when you buy shares in a company, you can do so with full confidence that you will riot be incurring unlimited or unforeseen financial liabilities, or getting involved with the company's financial and legal problems in any other way.
As a shareholder you can transfer your ownership rights by selling your shares to others. Shares are movable property which can be bought, sold ` gifted, bequeathed or transferred in any other manner permitted by law. Since the company has an independent existence of its own, it is not affected by any changes in its owners. Initially when a company is formed, shares in the company can be bought at their face value by making payments directly to the company. This is how companies raise their initial financial capital. Thereafter, the company is not affected by any subsequent transactions in which its shares are bought and sold in the stock exchanges. For example, if a Rs. 10 share of a company is sold in the stock market at Rs 3,000 each, it does not mean that
the company is now 300 times richer. All it means is that buyers of its shares consider that the company has a bright future and its shares are worth the high price they are paying for it.
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