Of all of the business structures available to the potential business owner within the UK, perhaps probably the most baffling is the private unlimited company. On this post, we take a have a look at what a personal unlimited company is, the way it’s different (and similar) to a limited company, its benefits and downsides, and methods to set one up. Let’s start.
What’s a personal unlimited company?
A personal unlimited company is a business structure that, like a limited company, must be registered with Companies House, the UK’s registrar of firms.
Whilst it is comparable to a personal limited company in plenty of ways, which we’ll have a look at shortly, there are plenty of differences that set the structures apart.
Liability is unlimited
The shareholders (also referred to as members) of a limited company are accountable for the nominal value of shares they own. This implies if an organization becomes insolvent, its shareholders must repay creditors this amount. In an infinite company, there is no such thing as a cap on the quantity that shareholders must pay. Their liability could be very much unlimited.
A personal unlimited company can operate with or without share capital. In instances when it’s running with share capital, the share allocation defines each shareholder’s rights inside the company, but doesn’t set a set limit on what each shareholder is accountable for.
If an infinite company has multiple shareholder, their share split would theoretically set out who’s accountable for what – by way of a percentage. But, if the corporate runs into trouble, and if one shareholder simply can’t pay – the debt would fall on the door of the opposite shareholder(s). On this respect, the structure is comparable to that of a sole trader, in that it offers zero protection to the business owner.
Accounts aren’t required
A personal limited company must file accounts on an annual basis, even when it isn’t currently trading.
This isn’t a requirement for unlimited firms, provided that the corporate in query isn’t a parent/subsidiary of a limited company or involved in certain industries (similar to banking).
Share mobility
Unlimited firms are registered at Corporations House and mainly follow the foundations set out within the Companies Act 2006. Nonetheless, there are restrictions placed on limited firms on the subject of returning capital to shareholders that should not imposed on unlimited firms. This makes it easier to maneuver capital in an infinite company.
There’s no public structure
Private limited firms have a public limited company counterpart that may trade on the stock markets. This isn’t an avenue that is on the market to unlimited firms, with all of them having to tackle private status.
Not at all times an ‘unlimited’ of their name
There are just a few instances when a limited company can avoid having ‘limited’ or ‘ltd’ at the tip of its name (for instance, it’s a registered charity) but generally speaking, limited firms have to end with one or the opposite.
By comparison, unlimited firms can select whether to make use of ‘unlimited’ at the tip of their name or apply no suffix in any respect. This may make it tricky to ‘pick’ an infinite company.
To ascertain if an organization is unlimited:
- Access the Companies House Search the Register tool
- Enter the corporate name
- Click on the suitable result
- From the ‘Overview’ tab, have a look at the ‘Company type’ field’
It’s price noting that, aside from an infinite company not having to make use of a suffix, all the identical rules apply to naming an infinite company that apply to naming a limited company.
Unlimited company and limited company similarities
The 2 structures share plenty of traits:
- As mentioned, each are registered at Corporations House under the provisions set out within the Corporations Act 2006
- In turn, each appear on the Corporations House public register
- The identical appointments are required to form and maintain each style of company, with each needing not less than one natural director (to run the corporate), one shareholder/member (who owns the corporate), and one person with significant control (who holds ultimate control)
- Each need a UK based registered office address
- Each have to file a confirmation statement on an annual basis
Some great benefits of private unlimited firms
There are just a few the reason why you could consider establishing as an infinite company fairly than a limited company (see our post in regards to the advantages of operating as a limited company).
Financial privacy
Because an infinite company doesn’t have to file annual accounts, minimal financial information is on the market on the general public register. This confidentiality may very well be appealing to the owners of the corporate, as their funds are protected against prying eyes (similar to those of competitors).
Share flexibility
As previously touched on, unlimited firms do not need to abide by the Corporations Act 2006 on the subject of returning capital to their shareholders. This freedom may very well be attractive to the owners of the business.
Added impetus to succeed
Because a lot is financially at stake for the members, their commitment to the corporate shall be sturdy. This may increasingly be seen as a profit to 3rd parties too, as they recognise that failure could be catastrophic for the members. So, the members’ attentiveness won’t be unsure.
The disadvantages of personal unlimited firms
There are little question downsides to operating as an infinite company.
Unlimited liability
By far the best problem for an infinite company is how vulnerable the structure leaves its members, because there is no such thing as a limit to the liability its members have financially should the business get into financial trouble.
Financial privacy could raise concerns
The proven fact that the corporate doesn’t have to file annual accounts (which are then displayed on the general public register) signifies that potential customers, suppliers, and other third parties won’t have the opportunity to do their due diligence. This may lead to the choice that working with the corporate isn’t a risk price taking.
Fear of failure
The corporate may very well be held back from success and growth because its members stand to lose a lot if a flawed decision is made.
A structure of confusion
Unlimited firms are shrouded in uncertainty. The unknown factor of the structure could have a negative impact on any business relationships that have to be forged. For instance, accountants, lenders, and other skilled service providers could also be wary of getting involved with the corporate.
Tips on how to form an infinite company
Unlimited firms cannot be formed online and as an alternative should be incorporated with the IN01 Application to register a company paper document.
To finish the shape you’ll need:
- A novel company name
- To decide on not less than one SIC code (you may select as much as 4)
- A UK based registered office address
- Details for not less than one natural director (full name, correspondence address, residential address, date of birth, occupation, and nationality)
- Details for not less than one shareholder/member (full name, address, and number, currency, and nominal value of shares held – if the corporate goes to have a share capital)
- Details for not less than one person with significant control (full name, correspondence address, residential address, date of birth, nationality, and nature of control)
- Memorandum and articles of association – see the below from GOV.UK in regard to those:
‘There aren’t any model articles provided for unlimited firms. Nonetheless, an infinite company can select to make use of model articles as the idea of its own articles of association. The articles must not include the supply for the liability of the members to be limited and the members should consider including an article containing power for an infinite company by special resolution to extend or consolidate share capital, subdivide or cancel shares or reduce share capital and any share premium account.’
Thanks for reading
We hope this post has answered all of your questions on unlimited firms.
It’s a peculiar business structure that mixes the prestige of a limited company with the high financial risk factor of a sole trader. For this reason, we recommend looking for skilled advice before committing your online business to this particular model.
Please get in contact via a comment if you’ve gotten any questions on unlimited firms, limited firms, and company formations generally.
