This is a question that is posed to us rather often. In typical limited companies, there will be shareholders. The liability of the shareholders is the amount of paid up capital that they have put into the company. For example, if a person buys 1000 shares of a company for $1000, then the company’s paid up capital is increased by this $1000. If this is the sole shareholder, then the company’s issued and paid up share capital is $1000 are there are 1000 issued shares. This shareholder can only lose up to what he put into the property. This means that this $1000 would go into the company’s bank account. This $1000 belongs to the company. However, if the company owes creditor say $10,000, these creditors cannot approach the shareholder and ask the shareholder to pay up the monies. The creditor can only claim what the company has. This is the principle of separate legal personality.

However, a public company limited by guarantee does not have shareholders. Instead, there are members. The members are essentially like shareholders in terms of voting on matters like the make up of the board of directors. However, the members do not put any money in the company. Instead, they put up a guarantee. This guarantee by the members is the amount the members need to put up in the event the company is liquidated. Typically, members put up a guarantee of $1. This means that if the public company limited by guarantee is liquidated, the member will have to contribute the money that they undertook to guarantee. In this case, as the member guaranteed $1, he will have to contribute $1.

Please note that this applies to public companies limited by guarantee. If you would like to know more about or would like to incorporate a non-profit organisation, you can contact the Raffles Corporate Services corporate secretarial team at [email protected].

 

Yours sincerely,

The editorial team at Raffles Corporate Services