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

(b)
Unlimited liability
66. <strong>The</strong> oldest type <strong>of</strong> corporate structure is that <strong>of</strong> an unlimited company. An unlimited
company can be ei<strong>the</strong>r proprietary or public. 48 While <strong>the</strong> company remains a going
concern, members, if called upon, are only liable to pay that amount unpaid on each share,
if called upon to do so. Significantly, in <strong>the</strong> event <strong>of</strong> a winding up, members can be made
liable without limitation. In those circumstances, <strong>the</strong> members’ liability for <strong>the</strong> company's
debts will depend on whe<strong>the</strong>r <strong>the</strong> company’s assets are inadequate. Creditors must apply
to <strong>the</strong> court for a winding up order to recover from members <strong>the</strong>ir unpaid share capital, and
even fur<strong>the</strong>r contributions if <strong>the</strong> company’s liabilities are still not disgorged.
67. <strong>The</strong> title <strong>of</strong> unlimited liability companies does not need to include <strong>the</strong> word ‘unlimited’.
However <strong>the</strong> recent trend <strong>of</strong> investment companies using this structure to take advantage
<strong>of</strong> <strong>the</strong> ability to wind-up by re-purchasing <strong>of</strong> <strong>the</strong>ir shares 49 has compelled <strong>the</strong> Australian
Securities and Investment Commission to make it a requirement that unlimited liability
companies display a warning <strong>of</strong> <strong>the</strong>ir status on any prospectus circulated to <strong>the</strong> public. 50
(c)
Liability limited by guarantee
68. A company limited by guarantee does not have <strong>the</strong> power to issue shares. 51 Members'
liability is limited to <strong>the</strong> extent <strong>of</strong> <strong>the</strong> capital <strong>the</strong>y guarantee <strong>the</strong>y will contribute in a winding
up. While it can be left open to <strong>the</strong> company to negotiate <strong>the</strong> amount <strong>of</strong> <strong>the</strong> guarantee with
each member, most companies will have a uniform guarantee in place. Members' interests
in <strong>the</strong> company are determined by <strong>the</strong> amount <strong>of</strong> <strong>the</strong>ir guarantee (ra<strong>the</strong>r than
shareholding).
69. If a company is winding up, and does not have adequate funds to discharge its debts, each
member will be liable to contribute only to <strong>the</strong> extent <strong>of</strong> <strong>the</strong> guarantee <strong>the</strong>y provided. 52
Persons who have been members within a year <strong>of</strong> <strong>the</strong> winding up can be considered by <strong>the</strong>
court to be liable to honour <strong>the</strong>ir guarantees.
70. Since a company limited by guarantee will always be a public company, it will never enjoy
<strong>the</strong> lesser degree <strong>of</strong> regulation applicable to proprietary companies. Unless restricted by
its constitution, this type <strong>of</strong> company can distribute pr<strong>of</strong>its to its members. Companies
limited by guarantee are a common corporate structure used by not-for-pr<strong>of</strong>it organisations.
(d) No liability – only for mining corporations 53
71. It is not mandatory, but a mining company, and only a mining company, can elect to form
as a no liability public company. 54 This structure is specifically designed to reflect <strong>the</strong>
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Corporations Act 2001 (Cth) s112.
R. P. Austin and I. M. Ramsay, Ford’s Principles <strong>of</strong> Corporations Law, Butterworths, 2005, 12 th Edition, p. 153.
See also s7 <strong>of</strong> <strong>the</strong> Corporations Act.
Corporations Act 2001 s124.
Corporations Act 2001 s517.
Under s9, CA: “mining purposes”, whe<strong>the</strong>r in Australia or elsewhere, means any or all <strong>of</strong>: a) prospecting for ores,
metals or minerals b) obtaining, by any mode or method, ores, metals or minerals; c) <strong>the</strong> sale or o<strong>the</strong>r disposal <strong>of</strong>
ores, metals, minerals or o<strong>the</strong>r products <strong>of</strong> mining; d) <strong>the</strong> carrying on <strong>of</strong> any business or activity necessary for, or
incidental to, any <strong>of</strong> <strong>the</strong> foregoing purposes.
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