Unlimited company

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An unlimited company or private unlimited company is a hybrid company (corporation) incorporated either 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) only applies 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 only have recourse to the assets of the company and not to those of its members or shareholders.

Until such event occurs (formal liquidation) - an unlimited company is similar with its counterpart the limited company where 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 CanadaAlberta 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 where an unlimited company will be preferred to an alternative business model or its limited company counterpart include:

  • 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 (i.e. file its annual financial accounts at Companies House).[1]
  • 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 extends to a limited company which may at any time re-register and designate itself to an unlimited company status.

Notable unlimited companies[edit]

The unlimited company is a not too common or perhaps well known or promoted form of company incorporation (due to the narrow focus of generic company formation registration agents) and is not always required under company law to add or state the word Unlimited or its abbreviations (Unltd., or Ultd.) at the ending of its legal company name, making it not easily recognizable without first reviewing its certificate of incorporation or government registry status. Notable examples in the United Kingdom include:

Other notable global trading companies such as Mobil Producing Nigeria Unlimited (a subsidiary of Exxon Mobil) and Texaco Overseas (Nigeria) Petroleum Company Unlimited (part of the merged Chevron and Texaco petroleum conglomerates) exist in Nigeria, amongst others. In the USA, another notable example is the American Express Company, which once was a publicly traded unlimited liability company, re-incorporating itself to a limited liability company status only in 1965.

In Ireland, local subsidiaries of a number of American companies have registered as unlimited companies to shield their finances from public view.[3] Janssen Pharmaceutical, a subsidiary of its US parent company Johnson & Johnson re-registered as an unlimited company to avoid the requirement to file annual financial accounts at the Companies Registration Office (CRO) Ireland, thereby effectively also protecting a portion of Johnson & Johnson's financial information.[3] Apple Computer's Irish division did the same.[4]

Specific Countries[edit]

United States[edit]

In the United States, a similar unlimited entity exists in the form of a joint-stock company (JSC). This type of joint stock association exists in New York and Texas, among other states. The JSC exists in Texas under the Texas Joint-Stock Company / Revocable Living Trust model, which would present the following differences from a general partnership:

  1. Has all the corporate characteristics, except limited liability of shareholders.
  2. Formed by private contract creating a separate entity.
  3. Recognized by a specific Texas State Statute, but not regulated by the Uniform Partnership Act.
  4. A shareholder cannot bind other shareholder concerning liability, etc.[5]

Despite the fact that shareholders are severably liable for the company's liabilities (as with general partnerships), Texas Joint-Stock Companies have frequently been inappropriately promoted in asset protection schemes as "alternatives" to limited partnerships and LLCs.[6]

References[edit]

  1. ^ Companies House website: Companies Act 2006 Guidance. Chapter 5 - Accounts for Companies House
  2. ^ As of 4 October 2013 re-registered to "Private Limited Company" status and company name changed to: Jaguar Land Rover Holdings Limited
  3. ^ a b Carswell, Simon (2008-08-16). "Janssen move keeps financial affairs private". irishtimes.com. irishtimes.com. Archived from the original on 2008-10-03. Retrieved 2008-10-03. 
  4. ^ Daly, Gavin (2006-07-16). "Apple firm re-registers as unlimited company". ThePost.ie. The Sunday Business Post. Archived from the original on 2008-10-03. Retrieved 2008-10-03. 
  5. ^ http://www.proadvocate.org/Programs/tabid/57/Default.aspx
  6. ^ http://www.quatloos.com/texas_joint_stock_co.htm