Companies Act Section 2(92) Unlimited Company

Unlimited Company Tribunal Section 2 (92)

Key Characteristics:

1. Liability of Members: 

In an Unlimited Company, the liability of its members is unlimited. 

This means that in the event of the company’s insolvency or liquidation, the members are personally liable to contribute towards settling the company’s debts and obligations, beyond the nominal value of their shares.

2. Legal Status: 

Like other types of companies, an Unlimited Company is a separate legal entity distinct from its members. 

It can own property, enter into contracts, sue or be sued in its own name.

3. Formation: 

The formation and incorporation of an Unlimited Company are similar to that of other types of companies, requiring compliance with statutory requirements under company law.

4. Management: 

The management and governance structure of an Unlimited Company may vary, typically governed by its articles of association and managed by directors appointed by the shareholders.

Advantages:

Flexibility: 

An Unlimited Company may provide greater flexibility in terms of management and decision-making compared to other corporate structures.  

Perpetual Succession: 

It enjoys perpetual succession, meaning the company continues to exist despite changes in membership.

Disadvantages:

Unlimited Liability: 

The primary disadvantage is the unlimited liability of members, exposing them to potential personal financial risk in the event of company failure.  

Investor Perception: 

Potential investors and creditors may perceive higher risk due to the unlimited liability, impacting the company’s ability to raise capital.

Usage:

Professional Firms: Unlimited Companies are sometimes preferred by professional firms, such as law partnerships or accounting firms, where partners are accustomed to unlimited liability in their professional practices.