28. Oct 2019 | Uncategorized

What is an Unlimited Company and why Should I have one?

An unlimited company is a type of business that is found in the UK. Unlimited companies are not used very often. However, you may have come across some, but they simply don’t use the word “Unlimited” in their name. They are fewer than 4,700 unlimited companies that are registered in the UK. However, this low number might be due to the lack of people not understanding the benefits of this type of company. 

What is an Unlimited Company and why Should I have one?
There are many clear benefits to running and unlimited company in the UK. (© Unsplash)

What is an unlimited company?

An unlimited company is similar to a company that is typically limited by shares. It needs to be registered at Companies House. It must also have a Memorandum of Association and Articles of Association. 

A director of the company will need to manage it on a daily basis and on behalf of all its members. These members are usually shareholders. 

When you form an unlimited company, you will need to report specific information to Companies House. This information includes the details of those who have significant control over the company. In addition to this, you will need to send Companies House an annual confirmation statement. 

The finances of an unlimited company are similar to that of a limited company. The shareholders do not have any direct liability to the creditors of the business. However, it’s only when an insolvency event takes places that there are clear differences. 

Formal Liquidation

If the unlimited company goes into formal liquidation the creditors will have access to the shareholder’s or member’s personal assets. In a case such as this, the shareholders will bear all the several, joint and unlimited liability. What this means is that regardless of your shareholding level, if other shareholders are not able to make a payment you might have to pay even more. This could potentially mean you could lose all your money.  

Similarities to Sole Traders and General Partnership

Even though an unlimited company is incorporated it shares some characteristics with a general partnership and a sole trader. This is because those who run the business accept liability for the debts run up by the company. 

Due to the nature of the liability of all its members, an unlimited company is not typically required to submit its accounts to Companies House. 

In the UK, some examples of unlimited companies include:

· The oldest bank in England which was founded in 1672 (C. Hoare and Co.).

· The oldest mutual insurer in the world (Equitable Life Assurance Society).

A private company that is limited by its shares can re-register as an unlimited company should it wish to do so. In the same respect, an unlimited company can re-register as a private company. 

Advantages of an unlimited company

Unlimited companies can benefit from some of the advantages that limited companies do. As there is a separate legal personality it means that the company can enter into some contracts in its own right. This ensures that the business can outlive some directors or shareholders. 

Other advantages of an unlimited company are: 

  • Its Management Quality

When there is unlimited liability it allows for careful risk management. This is because the owners can lose everything if things take a turn for the worse. If the shareholders do not manage the business, they can still have a keen interest in it. This interest can ensure that the director’s decisions are scrutinised. 

As there is more risk management there are likely to be lower risks that are pursued.  

  • Its Confidentiality

An unlimited company in the UK does not have to submit its accounts to Companies House. However, the directors of the company can still prepare the financial statements. If an unlimited company is to be eligible for the exemption the company must not have done the following during the accounting period:

  • Have been involved in the insurance or banking sectors.
  • Have been involved in a Scottish partnership where limited companies are included.
  • Have been a parent company of a company, more specifically, a limited company. 
  • A subsidiary undertaking of any limited company. 

If there are to be no accounts filed at Companies House, it means that there are no public records on their financial information. What this means is that their affairs are hidden from their competitors. This information would otherwise allow them to use the information to their advantage. However, the unlimited company can still view the financial data that belongs to its competitors. 

When financial data is not given out it means there is a lower risk of any hostile analysis by the media. 

An unlimited company is occasionally used when there is a need for a certain transaction to take place. This is one of the attractions of an unlimited company. In addition to this, any shares that are paid to shareholders are not made public, this is another attraction of unlimited companies.  

  • Share Capital Options

An unlimited company can return any capital to its shareholders. It can also reduce its share capital. This is thanks to the restrictions that have been defined by the Companies Act, 2006. these restrictions only need to be considered by limited companies. The flexibility that is offered here is useful when there is a group structure. This is because it gives the company many more options to move its capital between its entities.  

  • Creditor Confidence 

As those who run an unlimited company tend to be good at risk management creditors often have more confidence in them. This is because those who run the company are a lot less likely to borrow money if they’re unsure as to whether they can repay it. They are also likely to beat the full liability for their debts should the company become insolvent.  

Setting up an unlimited company

When it comes to setting up an unlimited company, it is usually formed in the same way as many other companies. This is done by registering the company at Companies House. 

An unlimited company can only be registered by using a paper form. Most other companies can be formed electronically. However, if you would like to set up an unlimited company you will need an IN01 form

If you would like to complete this form, you will need to include the following information: 

  • The company’s proposed name. This name must meet all of the rules that surround a business’s name. 
  • An article of association and a memorandum of association. There are no model/template articles available for unlimited companies. You will, therefore, need to create your articles that contain the unlimited liability clause. 
  • The details of at least one director.
  • The details of all members of shareholders. Please note, there is no minimum amount of capital for you to register an unlimited company. 
  • The address of a registered office that’s located in the United Kingdom. 
  • The details of those with significant control.

When all of the information that you have provided has been checked by Companies House you will be issued with a certificate of incorporation. 

There are many clear benefits to running and unlimited company in the UK. As long as you are aware of the associated risks you could find that this is the ideal type of company for you. 

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