What is no liability?

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.

What is meant by a no liability company?

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.

Frequently Asked Questions (FAQs)

What requirements should be fulfilled for becoming a no liability company?

A company can register itself as a no liability company when they fulfil three requirements which are stated under the Corporation Act.

1. The company should mandatorily have a share capital.
2. The company’s constitution should clearly mention that the company’s sole purpose of establishment is mining.
3. Lastly, the company does not have any right to recover calls made on the company shares from the investors who fail to pay them.

What is the difference between a no liability company and a limited liability company?

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.

• Definition – As per the IRS definition, in the limited liability company, the owner has limited liability for the company’s liabilities and debts. On other hand, the no liability company term is associated with the Australian companies and refers to the structure of the company. As per the Australia and New Zealand Banking Group (ANZ), the share owners of the company who have made a partial payment on their holdings are not liable to make any further payment on the outstanding even if the company asks them for making the payment.
• Features – As stated by IRS, the owners of the limited liability company can be individuals, corporations, other limited liability company or any foreign entity. The personal exposure of the owners of the limited liability company is limited to the debts of the company. In the no liability company, according to ANZ, the shareholders who have made a partial payment on the share capital and do not pay of the rest of the amount when a company asks for it, then after withdrawing the holdings, the shareholders will lose the whole amount which they have already paid.
• Benefits – The benefit of forming a limited liability company is that it offers flexibility to the management and extends some tax advantages. However, in the no liability company, according to ANZ, when the shareholders do not make full payment of the balance due on their shareholdings, then the company can resell the share and the amount realized over and above the share prices will be paid back to the previous holders. This benefit allows the investor to even invest in risky firms (companies with no liability).

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What words should be used by organisations while registering as no liability, liability or proprietary?

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,

• ‘Limited’ – Ltd
• ‘No liability’ – NL
• ‘Proprietary’ – Pty or Pty Ltd

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.

What actions can be taken by the regulatory authorities in case of misuse of the specific words while registering?

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.

What is a non-liability certificate?

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.

How a balance sheet of a no liability company is treated?

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.