ACS Gaurav Aggarwal

Gaurav AggarwalAs per Section 2(92) of the Companies Act 2013,(“Act”) (corresponding Section 12(2)(c) of the Companies Act, 1956) “Unlimited Company” (UC) means a company not having any limit on the liability of its Members.

Members and Shareholders are fully liable to cover its debts. In the case of UC the liability of each member extends to the whole amount of the company’s debts and liabilities, but he will entitled to claim the contribution from other members.

In the case of a UC, the liability is similar to that of partner although the creditors cannot directly institute legal proceeding against the individual member. Creditors have to institute proceeding for winding up but OL can call upon the member to discharge the debts and liabilities without limit. Under Section 32 of the Companies Act, 2013 an ULC can get itself re-registered as limited liability Company but such conversion will not affect prior debts, liabilities and obligations.

An UC is not the same as an un-incorporated company, though in both case, the liability of the member is unlimited. The difference between two is that while UC registered under the Companies Act is a legal person with perpetual succession and common seal, capable of borrowing, suing and sued and holding property in its own name in the case of un-incorporated association the individual member alone have right and duties and association as such no existence as legal entity.

As per the provisions of Section 65 of the Act, an unlimited company may convert itself into a limited company. The procedure for incorporation of such companies is similar to that of companies with limited liability.

In relation to a holding company which is either a company limited by guarantee or an UC, the reference in this section to shares shall, whether or not the company has a share capital, be construed as including a reference to the interest of its members as such, whatever the form of that interest.

ADVANTAGES:

  • It can be incorporated with or without share capital.
  • It can increase or decrease its share capital without any restrictions.
  • In calculating limit, for the purposes of Sections 165 of the Act, the number of companies of which a person may be a director, the Unlimited Company shall be excluded.
  • Provision of Section 66 of the Act i.e reduction of share capital shall not apply
    • As there is no limit in extent of liabilities.
    • Outsiders liabilities remains unaffected.
  • Section 67 of the Act, is not applicable to Unlimited Company where the same can purchase its own share which is not allowed in case of Limited Company.
  • Provision of Section 68 of the Act, i.e Buy Back of Securities shall not apply
    • No Capital Redemption Reserve required (CRR).
    • Outsiders liabilities remains unaffected.

DISADVANTAGES:

  • Without any limit over liability of the Shareholders and Members while meeting the needs of the Company in varied aspects or debt during the course of liquidation.

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Category : Income Tax (25803)
Type : Articles (15270)
Tags : Companies Act (2030) Companies Act 2013 (1802)

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