company law

where a limited company is created the liability of the members may be limited by guarantee (only available for private companies) or it may be limited by shares

liability limited by shares – if the liability of the members is limited by shares, this means first of all that a member’s liability is limited and secondly that we shall use that member’s shareholding to compute any liability that exists

However, a limited company cannot ask for more money from its shareholders that the nominal value of the shares held by that member and if the shares are “fully paid” then that member has no further liability

liability limited by guarantee – if the liability of the members is limited by guarantee, this means first of all that a member’s liability is limited and secondly that we shall use that member’s guarantee (given by the member at the time they acquired their interest in the company) to compute any liability that exists

Typically a member will guarantee that, in the event of an insolvent liquidation, the member will guarantee to contribute $X into the company to help to pay off its debts

In that situation, the liquidator can ask all the members to pay money up to the amount they have guaranteed but their liability is limited by that figure – that’s the MOST that they may have to pay up

Now the kicker! It is normal in a private company limited by guarantee to ask the members to guarantee an amount. So members do. And the amount that they normally guarantee is just $1

OK?

You’re welcome