(PRIVATE)
COMPANY LIMITED BY SHARES VS (PRIVATE) COMPANY UNLIMITED WITH A SHARE
CAPITAL
Company
Limited by Shares
A 'company limited by shares' is a company formed on the principle
of having the liability of its members (otherwise known as its shareholders
or owners) limited to the balance amount (if any) which remains unpaid
on the shares held by its members - sections
9 and 516
of the Corporations Act 2001.
Accordingly, if the members have paid for their shares in full and
the company gets into financial strife (for example by owing more
than the total value of its assets) then, even so, the members will
not*** be required to contribute any further money to the company
to go towards paying for any such shortfall.
However, if the members do have amounts remaining unpaid on their
shares, the most those members can be required to contribute to the
shortfall is the amount remaining unpaid on their shares.
***A note of warning: If the members are also directors of the company,
they may be exposed to further liability (for example, if they allowed
the company to incur the debts at a time when they knew the company
would be unable to repay those debts - sections
588G , 588J(1)
and 588K(1)
of the Corporations Act 2001 - and may have additional civil and criminal
liabilities - sections
588G(3) and 1317G
of the Corporations Act 2001)
Companies limited by shares are vastly more common than companies
unlimited with share capitals.
Companies limited by shares have various restrictions on the reduction
of share capital and on share buy-backs - see Chapter 2J of the Corporations
Act 2001.
Unlimited Company with a Share Capital
An 'unlimited company' is a company whose members have no limit placed
on their liability - section 9
of the Corporations Act 2001.
Accordingly, even if the members have paid for their shares in full
and the company gets into financial strife (for example, by owing
more than the total value of its assets) then the members could be
required to contribute further money to the company to go towards
such a shortfall.
You may reasonably wonder why anyone would want to form such a company.
Sometimes, for example, a group of professionals' governing body or
governing legislation may only allow them to incorporate their business
on the condition that the resulting company has no limit placed on
the liability of its members (i.e. the professionals). Despite the
lack of limited liability for the professionals, the incorporation
of the business as an unlimited company may still suit the professionals
for tax or other reasons.
Unlimited companies are far less common than companies limited by
shares.
Unlimited companies must always have a share capital - section
112(1) of the Corporations Act 2001.
In contrast to the various restrictions on reductions to share capital
and on share buy-backs which apply to companies limited by shares,
an unlimited company may reduce its share capital in any way it chooses
- section
258A of the Corporations Act 2001.
