An unlimited company is a company which has no limit on the liability of its members. The company takes the benefits of incorporation but the members of the company do not have the full benefits of separate legal entity in terms of limitation of liability of members. Therefore, the members bear the liability of the company but the company does not bear the liability of the members. In an unlimited company, shareholders’ risk losing their money and their own property in order to pay the company’s debts if the company goes bankrupt.
The basic features of an unlimited company include:
- The Memorandum of Association of the company will provide for unlimited liability of the members of the company.
- The member’s personal property will be used to pay the debts of the company in the event of winding up of the company.
- While the company enjoys separate legal personality and limited liability, the members of the company are like general partners (with unlimited liability) in respect of their liability in the company.
You might be asking why someone in his right senses would agree to be a member of an unlimited liability company. One of the reasons could be that the members want to convince the general public about their absolute confidence in the company.
Unlimited companies are suitable for professional service companies where integrity, skill and competences are the basic values. Unlimited companies are sometimes used by professional practices as an alternative to Partnerships. The members of an unlimited company could be people who might be attracted to a general partnership (which has unlimited liability) but want the structure of a company and company law.