Continuing our back to basics series on different legal vehicles for your company, here we look at the lesser known private unlimited companies in more detail. Is this type of entity right for your business?
We’ll be covering:
What is a private unlimited company?
Private unlimited companies are similar to private limited companies but with a few key differences – firstly, they generally do not have to file accounts at Companies House so they can keep their trading information secret, and secondly the liability of the shareholders is unlimited, so if the company is insolvent or goes into liquidation the shareholders are personally liable to repay creditors.
Private unlimited companies are not common in the UK, and where they are used, it’s usually because the owners wish to keep information that could be valuable to competitors, such as turnover and the amounts paid in dividends, out of the public eye.
Forming an unlimited company is similar to forming a limited company. You will need the following information to register an unlimited company at Companies House:
- The company name (this must be different from any other company already on record, and cannot contain certain words or be offensive or misleading)
- A memorandum and articles of association (you will need to create these yourself as there are no standard forms available)
- Details of the shareholders and directors including People with Significant Control. There must be at least one director and shareholder, although this can be the same person.
Advantages and disadvantages of private unlimited companies
|The main advantage of a private unlimited company is that it can keep its financial affairs private. It can trade in the same way as a private limited company, has a separate legal identity and can enter into contracts with third parties, but it usually will not have to file its accounts at Companies House for inspection by the public.||The principal disadvantage of an unlimited company is that the shareholders have no protection on an insolvency or liquidation – they are personally responsible for the repayment of creditors.|
|In addition, unlike limited companies, unlimited companies have more flexibility to reduce capital, and return capital to shareholders. Where a group of companies wants to be able transfer funds freely between associate companies, an unlimited company might be an appropriate choice, provided the risk of insolvency of that organisation is very low.||The effect of this personal liability is that directors and shareholders take a low-risk approach to management as we’ve discussed, and this could mean that the company does not grow as fast as it might with a less cautious approach. Potential investors would be likely to see less return on their capital, and this can prove a disincentive when seeking additional participants in the company.|
|Because of the danger that members of an unlimited company will have to dig into their own pockets to repay company creditors, risk is generally vary carefully managed in an unlimited company, increasing creditor confidence. Unlimited companies usually rely upon their own trading activities and capital to carry out their day to day trading activities, and insolvency is extremely unlikely because of the cautious approach to management.||Because unlimited companies are fairly unusual, finding directors and shareholders to join you in business could be more difficult with an unlimited company because of the personal, financial responsibility they will incur.|
|In addition, notwithstanding the advantages related to the cautious approach to risk management, lenders could be careful advancing finance, as they will need to investigate the solvency of each individual shareholder, and may be more inclined to ask for personal guarantees and security like mortgages from individuals.|
Do private unlimited companies have to file accounts?
Unlimited companies usually don’t have to file accounts with Companies House, although the directors still need to prepare annual financial statements. However, if the unlimited company is the parent company of a limited company, is a subsidiary of a limited company, or involved in certain activities such as insurance or banking, it will have to file accounts at Companies House.
Differences between limited and unlimited companies
|Private Limited||Private Unlimited||Public limited|
|Minimum capital requirement||No||No||Yes (£50,000)|
|Need to publish accounts||Yes||No (usually)||Yes|
|Limited liability for shareholders||Yes||No||Yes|
|Number of directors and shareholders||Minimum one||Minimum one||At least two and company secretary|
|Ability to offer shares to the public||No||No||Yes|
|Auditor needed?||Usually no||No||Yes|
Re-registering a company from private unlimited to private limited
You can re-register your unlimited company as a limited company provided you have not previously gone from a limited to an unlimited company. You will need a special resolution of the members that states whether the company will be registered by shares or by guarantee.
In order to complete the re-registration process, you will need to file the following information at Companies House:
- A statement of the proposed new name
- A copy of the amended Articles of Incorporation
- A statement of compliance with the requirement of the Companies Act 2006
- If the new company is to be limited by guarantee, the statement of guarantee
- Where the company to be re-registered already has a share capital, a statement of capital
Once the certificate of incorporation is issued, the re-registration will take effect.