Section 51.3 of the Business Corporations Act sets out the extent of Unlimited Liability Company (ULC) shareholder liability and describes when the liability accrues.
Shareholders are essentially liable for all of the debts and liabilities of the company, but the liability does not crystallize unless and until the company dissolves. Shareholder liability is "joint and several", which means that one shareholder can be sued and held liable for the entire debts and liabilities of the company.
The section also sets out the rules for the liability of former shareholders of a ULC. The potential liability of these shareholders only lasts for one year following the date that they ceased to be shareholders of the ULC.
Lastly, the section sets out the continuing liability of shareholders of ULCs that "transform" either through amalgamation or by alteration of their notice of articles to become limited companies. Generally, in these cases, the liability of shareholders for the debts of the former ULC continues as if there had been no transformation.
For your reference, an unofficial version of Section 51.3 of the Business Corporations Act has been included in the following section.
BUSINESS CORPORATIONS ACT
[SBC 2002]CHAPTER 57
Liability of shareholders of unlimited liability companies
51.3 (1) Subject to subsection (2), shareholders and former shareholders of an unlimited liability company are jointly and severally liable as follows:
(a) if the company liquidates, the shareholders and former shareholders are jointly and severally liable, from the commencement of the company's liquidation to its dissolution, to contribute to the assets of the company for the payment of the unlimited liability company's debts and liabilities;
(b) whether or not the company liquidates, the shareholders and former shareholders are jointly and severally liable, after the company's dissolution, for payment to the company's creditors of the unlimited liability company's debts and liabilities.
(2) A former shareholder of an unlimited liability company is not liable under subsection (1) unless it appears to the court that the shareholders of the unlimited liability company are unable to satisfy the debts and liabilities referred to in subsection (1), and, even in that case, is not liable under subsection (1)
(a) in respect of any debt or liability of the unlimited liability company that arose after the former shareholder ceased to be a shareholder of the unlimited liability company,
(b) in a liquidation of the company, if the former shareholder ceased to be a shareholder of the unlimited liability company one year or more before the commencement of liquidation, or
(c) on or after a dissolution of the company effected without liquidation, if the former shareholder ceased to be a shareholder of the unlimited liability company one year or more before the date of dissolution.
(3) The liability under subsections (1) and (2) of a shareholder or former shareholder of an unlimited liability company continues even though the unlimited liability company transforms, and, in that event,
(a) a reference in subsections (1) and (2) to
(i) "shareholder" is deemed to be a reference to a person who was a shareholder of the unlimited liability company at the time it transformed, and
(ii) "former shareholder" is deemed to be a reference to a person who ceased to be a shareholder of the unlimited liability company before it transformed, and
(b) a reference in subsection (1) (a) or (b) or (2) (b) or (c) to "the company" is deemed to be a reference to the successor corporation.
(4) In subsection (3) and this subsection:
"successor corporation", in relation to an unlimited liability company, means any corporation that results from the company, or any of its successor corporations, transforming;
"transform", in relation to an unlimited liability company or any of its successor corporations, means to
(a) alter its notice of articles to become a limited company,
(b) continue into another jurisdiction, or
(c) amalgamate with another corporation.
This is an unofficial excerpt from the Business Corporations Act and is included for ease of reference only. For complete information, refer to the Business Corporations Act. Acts and regulations are available for purchase through Crown Publications at www.crownpub.bc.ca.