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What Is a Shareholder’s Liability? What Is Liability in Case of a Company With a High Share Capital?

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What is the shareholders liability? What is liability in case of company with a high share capital?

Deciding on a company’s share capital is a must before proceeding with company incorporation in Singapore. Share capital details must be documented in the company constitution. Moreover, Singapore law obliges all companies in the country to maintain share capital throughout their existence.

When it comes to company affairs, does a shareholder have any liabilities, especially if the company has a high paid-up capital? Can a shareholder be also called upon to make up for a company’s losses? These concerns are our areas of focus in this guide. Read on.

What Is Share Capital?

Share capital deals with the money that a shareholder has invested in a company to reciprocate the company shares issued to him or her. In Singapore, shares can be issued by a company even if full payment has not yet been received from a shareholder.

Share capital comprises all the funds that a company has gathered in exchange for shares. It is the key source of finances for private limited companies. Furthermore, it does not only determine the ownership of a company, but also grants rights, privileges, and responsibilities to a shareholder.

What Happens at the Time of Company Incorporation in Singapore?

To form the proposed company in Singapore, a shareholder must inform or sign the company constitution to commit a specific amount through a capital. The Section 5 of a company constitution states:

Shareholder's libilities - Time of Company Incorporation

“We, the persons whose names and occupations are set out in this Constitution, desire to form a company in pursuance of this Constitution and we each agree to take the number of shares in the capital of the company set out against our respective names.”

If another shareholder would be joining the company formation, then he or she would also have to sign the same document. However, this document will now be referred to as the subscription agreement. In principle, it means that a shareholder is committing that much amount and that is his or her maximum liability toward a company.

What Is a Shareholder’s Commitment?

A shareholder’s commitment toward a company is limited to the agreed share capital contribution. If you have signed a document for S$10,000, then that would be your committed contribution to a company.

Shareholder's libilities - Shareholder's commitement

Suppose that the company did not function well and incurred a huge debt of S$50,000, but your agreed amount of commitment was only S$10,000. In this case, you do not have any liability and you cannot be required to pay beyond the agreed amount (which would be S$40,000). The company can then be liquidated, and whatever is left of the company will be distributed to the creditors and the company will be closed thereafter.

If you have not paid the initial S$10,000 into the company bank account yet, which was previously agreed upon, then you would carry the responsibility of paying the balance to the company. In other words, your liability toward a company is limited to that S$10,000, which you have committed.

What Happens If a Company Was Incorporated With a High Share Capital?

Shareholder's libilities - When company was incorporated with high share

Suppose that a person incorporates a company by declaring a capital of S$1,000,000, but deposits only S$10,000 into the company bank account. In case anything wrong happens with the company, he or she would be expected to pay the balance amount into the company bank account to meet any debts or liabilities of the company.

It is also worth noting that when a shareholder is committing a higher capital, it would be his or her personal responsibility to ensure that there is enough money with him to pay for this capital. Logically in this case the shareholders liability is to the tune of 1,000,000 SGD which he has undertaken.

In Conclusion

Share capital is another significant factor in company incorporation in Singapore. To conclude, a shareholder’s liability is restricted only to the capital that he or she has committed to the company and not beyond it. If the amount has been fully paid, a shareholder will no longer have any personal liabilities toward the company. Otherwise, the creditors can demand that the shareholder be personally accountable for any deficits that the company may have in share capital.

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