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The concept of limited liability is closely connected to the division of company‟s
capital into shares. 19 Limited liability is achieved through shares when what
shareholders are required to contribute towards the assets of the company is limited
to the amount shareholders agree to pay. 20 Since the company is now the debtor and
with limited liability, creditors seek to rely on the amount of share capital
contributed in order to estimate shareholders‟ liabilities. 21 In other words, decisions
to give credit are made based on the representation of share capital in the
Constitution. As such, the amount contributed by shareholders signifies the
company‟s capability to make repayment. The decision in Re Exchange Banking Co,
Flitcroft’s Case 22 accentuated this point when Jessel MR explained:
The creditor has no debtor but that impalpable thing the corporation, which
has no property except the assets of the business. The creditor, therefore, I
may say, gives credit to that capital, gives credit to the company on the faith
of the representation that the capital shall be applied only for the purposes of
the business, he has therefore a right to say that the corporation shall keep its
capital and not return it to the shareholders, though it may be a right which he
cannot enforce otherwise than on a winding up. 23
Meanwhile, the concept of property began to change to include abstract intangible
rights such as shares. 24 The emergence of a share capital market helped to accelerate
19 Ibid.
20 Ibid.
21 Ibid, at 156.
22 (1882) 21 Ch D 519.
23 (1882) 21 ChD 519 at 533.
24 Ireland, Grigg-Spall and Kelly above n14 at 153; Crawford Brough Macpherson “Capitalism and
the Changing Concept of Property” in Eugene Kamenka and Ronald Stanley Neale (Eds)
Feudalism, Capitalism and Beyond (Australian National University Press, Canberra, 1975) 104 at
110.
154