What is "unlimited company"

An unlimited company or private unlimited company is a hybrid company ( corporation) incorporated with or without a share capital (and similar to its limited company counterpart) but where the legal liability of the members or shareholders is not limited: that is, its members or shareholders have a joint, several and non-limited obligation to meet any insufficiency in the assets of the company to enable settlement of any outstanding financial liability in the event of the company's formal liquidation. The joint, several and non-limited liability of the members or shareholders of the company to meet any insufficiency in the assets of the company (to settle its outstanding liabilities if any exist) applies only upon the formal liquidation of the company. Therefore, prior to any such formal liquidation of the company, any creditors or security holders of the company may have recourse only to the assets of the company, not those of its members or shareholders.

Until such an event occurs (formal liquidation), an unlimited company is similar with its counterpart, the limited company, in which its members or shareholders have no direct liability to the creditors or security holders of the company during its normal course of business or existence.

Unlimited companies are found in the United Kingdom, Ireland, Hong Kong, Pakistan, Nigeria, India, Australia, New Zealand and other jurisdictions where the company law is derived from English law. They can also be found in Germany, France, Macao, Czech Republic and in two jurisdictions in Canada ( Alberta and Nova Scotia), where they are called unlimited liability corporations. In the United Kingdom, they are formed or incorporated by registration under the Companies Act 2006.

An unlimited company has the benefit and status of incorporation same as its limited company counterpart. Situations for which an unlimited company will be preferred to an alternative business model or its limited company counterpart include these:

• secrecy concerning financial affairs is desired, effectively shielding and protecting its financial affairs from its competitors and making them non-public information including shareholder dividend payments: a United Kingdom unlimited company, unlike its limited company counterpart, is generally not required to publish or make public its company financial statements (file its annual financial accounts at Companies House).
• the company is trading in an area where limited liability is not acceptable, vital or practical.
• extending, in general, a greater assurance and confidence to creditors and trade financial transactions, in contrast to its limited company counterpart.
• there is a low risk of insolvency.
• the company or its trading activities has or generates sufficient capital, funds or financing without need to approach general lenders such as high-street retail banks.
• developing more advantageous company and business capital strategies in an ever increasing irreversible trend of bank disintermediation by companies and their management.
• a focused higher standard of board of directors and executive management behaviour (or probity) and business model for risk management.
• a flow-through entity is required for United States federal tax purposes, under the entity classification rules.

Once formed or incorporated, an unlimited company can, in some jurisdictions, also re-register and designate itself to limited company status at any time with few formalities, the same also extending to a limited company, which may at any time re-register and designate itself to an unlimited company status.