What is an unlimited company?

Definition of an Unlimited Company

You may have found yourself wondering what the difference is between an unlimited and a limited company on a regular basis.

"If there is no limit on the liability of its members, the company is a "unlimited company," according to Section 3 (4) of the Companies Act 2006." The contrast between limited and unlimited companies is made extremely obvious in this definition.

An unlimited company, also known as a private unlimited company, is a body corporate incorporated with or without shares capital (and relatively close to its limited company counterpart), but with the legal liability of its members or shareholders not limited: that is, its members or shareholders guarantee to meet any insufficiency in the company's assets to allow settlement of any outstanding financial liability in case of the company's bankruptcy.

The nature of a company's shareholders' liability is set in its constitution.

Despite being registered with Companies House, the unlimited company has a lot in common with a sole trader and a general partnership in that persons who run it take full responsibility for the company's debts.

How to form an unlimited company?

The formation of an unlimited company is similar to that of a limited one. However, there are a few notable changes, such as the fact that you can only register an unlimited company via the use of form IN01 rather than online. You will need the following items to complete the IN01 form to register an unlimited company:

• The suggested company name, which must still adhere to the majority of the company name criteria.
• A memorandum and articles of association which should include an unlimited liability clause.
• A registered office in the United Kingdom
• At least one individual director's information.
• Information about members or shareholders
• Information on the planned People with Significant Control (PSCs)

Companies House will provide a certificate of incorporation for the new unlimited company once all of this information has been given, verified, and accepted.

The advantages of an unlimited company

Despite the fact that there is no limit on the liability of its members, an unlimited company has some important advantages.

1. Options for flexible share capital

It is easier to return capital to shareholders in unlimited companies than it is in limited companies. This is due to the Companies Act of 2006, which imposes limits on limited companies. When you're in a group structure, this flexibility comes in handy because it allows you more options for moving capital across organizations.

2. Confidentiality

In forming this company, you will have the benefit of not filing yearly accounts with Companies House (unless the company has been either a subsidiary undertaking or a parent company of an undertaking which is limited during the relevant accounting period).

This form of UK company is appropriate for a business where the risk of insolvency is very minimal or non-existent, or when it is critical, for whatever reason, that the company's accounts remain off the public register at Companies House.

3. Creditor Satisfaction

If the company is liquidated, it appears that shareholders and directors are responsible, and creditors can have better confidence that the company will not borrow more than it can afford to repay. This, combined with improved risk management, can help creditors have more faith in the company.

4. Management has improved.

It appears that unlimited company shareholders and directors may stand to lose everything if the company is liquidated, which may encourage good risk management. Even if the shareholders aren't actively participating in the company's operations, they are interested in the decisions that are made. However, this may result in lower-risk decisions being made than would otherwise be the case.

Why choose to be registered as an unlimited company?

"Bigger the risk, higher the profits," goes the popular adage in financial management. This is especially true in the case of unlimited liability companies. Because the unlimited liability model exposes investors to a high level of risk, it is highly likely that investors will receive a greater rate of return if the company performs successfully.

When trying to avoid a public audit, owners who do not want to publicly file financial information with the registrar usually choose an unlimited company. Local subsidiaries of a number of American companies have registered as private unlimited companies in the Republic of Ireland, this gives them the service of keeping their finances hidden from public disclosure, the news and competition research.