As per the business law of Australia, no liability is a form of limited liability that might be employed by companies. In no liability, the shareholders can make payment of the company’s debt and the shares are surrendered in lieu of money.
No liability company is a type of limited liability company. The key activities of the no liability companies are mostly limited to oil exploration or mining activities. These public companies are termed as no liability company as they are not eligible to calls on the shares which have unpaid issue prices. This characteristic allows the investors to make investments in risky mining ventures as the investors who hold unpaid shares in the company can withdraw their holdings from the company with no legal consequences, however, the unpaid shares will be forfeited.Summary
A company can register itself as a no liability company when they fulfil three requirements which are stated under the Corporation Act.
Both no liability and limited company are techniques for setting up companies. The difference in the terms occurs due to the difference in the accountability of the owners.
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Depending upon the type of the company, a registered company requires to include the words ‘no liability, ‘liability’ or ‘proprietary’ within the name of the organisation. These words are abbreviated in the following manner,
There is a difference between the registration of a company and the registration of a business. In case a registered business is not registered as a company, then the business is not required to use these abbreviations within the name of the business.
Improper usage of the terms no liability, liability and proprietary is a legal offence, that is, businesses are using them when they are not registered as a company.
Improper usage of the abbreviations is seen as a breach of the Corporation Act 2001. Generally, ASIC does not investigate for the individuals and actions are only taken when ASIC have evidence regarding the breach of the corporation act. Moreover, action is dependent upon the impact on the broader public and market.
A non-liability certificate indicates that the incumbent has no outstanding amount with the organisations. The legal document is generally accepted by financial and government institutions. Moreover, no liability certificates are considered as evidence in judicial proceedings.
For example, to understand the usage of the non-liability certificate, a buyer of a real estate can ask for the non-liability certificate from the seller to ensure that the real estate bought is free from encumbrances.
The basic principle of accounting is that assets are equal to the submission of liabilities and equities. The equation states that after deduction of the amount the company owes to another party or individual from the assets, the rest of the amount solely belongs to the organisation (equity).
The equation can also be deduced as the assets are purchased from the money of other individuals or organisations since the money to make a purchase can either belong to the organisations (equity) or can be borrowed from the open market (liability).
Therefore, taking into consideration the above aspects, the literal meaning of the no liability company is that the company does not have any borrowings and all the assets belong to the company only.
However, in a no liability company, the shareholder is not liable to pay the unpaid amount on their holdings as per Australia’s business law.