The Impact of the Corporate Form on Corporate Liability for ...

systems. 42
In Australia, <strong>the</strong> role <strong>of</strong> members within <strong>the</strong> corporate structure, including in
relation to <strong>the</strong>ir liability, is governed by <strong>the</strong> company's constitution, <strong>the</strong> Corporations Act
and <strong>the</strong> common law.
60. <strong>The</strong> type <strong>of</strong> shareholder liability accorded to members is a primary factor that differentiates
companies registered under <strong>the</strong> Corporations Act. <strong>The</strong> types <strong>of</strong> member liability that may
be adopted by a corporation under Australian law include general liability, unlimited liability,
liability limited by guarantee, no liability and limited liability.
61. Each <strong>of</strong> <strong>the</strong>se forms <strong>of</strong> liability is discussed in more detail below. Aside from a 'no liability'
company, each <strong>of</strong> <strong>the</strong>se forms to some extent limit <strong>the</strong> liability <strong>of</strong> a corporation's members
for <strong>the</strong> debts or obligations <strong>of</strong> <strong>the</strong> company.
62. In addition, in Australia, corporations are also classified according to <strong>the</strong>ir public or
proprietary status. A proprietary company must have its share capital issued as ei<strong>the</strong>r a
limited or unlimited liability corporation, but it cannot <strong>of</strong>fer those shares to <strong>the</strong> public or
engage in activity that would require certain disclosures to investors. Any company not <strong>of</strong>
a proprietary nature, including a company limited by guarantee or a no liability company, is
classified as a public company. 43 Public companies are more heavily regulated and are
able to invite investment from <strong>the</strong> public.
63. In certain circumstances, <strong>the</strong> extent <strong>of</strong> shareholder liability will be challenged and, if
successfully challenged, could result in <strong>the</strong> court's allowing access to <strong>the</strong> assets <strong>of</strong>
members where a corporation is unable to meet its debts or obligations. In this way, <strong>the</strong>
corporate veil is said to be 'pierced' allowing access behind <strong>the</strong> veil <strong>of</strong> corporation to <strong>the</strong>
members and importantly, <strong>the</strong>ir assets. <strong>The</strong> concept <strong>of</strong> piercing <strong>the</strong> veil <strong>of</strong> incorporation is
discussed in detail in Parts 7 to 10 below.
5.2 Types <strong>of</strong> shareholder liability
64. As stated above, <strong>the</strong> liability <strong>of</strong> members <strong>of</strong> a corporation may vary according to <strong>the</strong>
corporate structure chosen.
(a)
General liability
65. Under this organisational structure, past and present members have a general liability to
pay a company’s debts and liabilities, such as <strong>the</strong> costs, charges and expenses <strong>of</strong> winding
up, adjusting <strong>the</strong> rights <strong>of</strong> contributions amongst <strong>the</strong>mselves. 44 A past member need not
contribute in respect <strong>of</strong> any debt incurred after he or she ceased to be a member 45 or if he
or she was not a member at any time during <strong>the</strong> year prior to <strong>the</strong> day <strong>of</strong> commencement <strong>of</strong>
a company’s winding up. 46 Only if existing members are seen by <strong>the</strong> court as unable to
satisfy <strong>the</strong> debt, will past members be liable. 47
42
43
44
45
46
47
Puig (n19) at para [11].
Corporations Act 2001 (Cth) s9.
Corporations Act 2001 (Cth) s515.
Corporations Act 2001 (Cth) s520.
Corporations Act 2001 (Cth) s521.
Corporations Act 2001 (Cth) s522.
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