The principal method of carrying on business in Ireland is through a private company limited by shares. However, annual statistics published by the Companies Registration Office (“CRO”) have shown a slight but steady increase in the number of unlimited companies being incorporated in Ireland each year. The most recent CRO Annual Report indicated that there were 4,126 unlimited companies registered in the State at the end of 2011. They represent 2.23% of the total number of companies on the register.
What Is An Unlimited Company?
Section 5(2)(c) of the Companies Act 1963 (as amended) defines an unlimited company as “a company not having any limit on the liability of its members”. Section 207(1) stipulates that, in the event of the unlimited company being wound up, the shareholders “shall be liable to contribute to the assets of the company to an amount sufficient for the payment of its debts and liabilities, and the costs, charges and expenses of the winding up, and for the adjustment of the rights of the contributories amongst themselves”.
Unlimited companies share many of the features of limited companies. However, unlimited companies must have a minimum of two shareholders.
Why Incorporate Or Convert An Unlimited Company?
As mentioned above, members of an unlimited company shall be directly liable, without limitation as to the amount, for an unlimited company’s debts on insolvency. This liability continues for one year after ceasing to be a member. Given the risks inherent in becoming a member of an unlimited company, it is perhaps unsurprising that they are rarely used as trading vehicles.
Notwithstanding the foregoing, there are significant advantages to be weighed against the risks. Many may be motivated to incorporate or convert to an unlimited company for confidentiality reasons. Although an unlimited company is obliged to file an annual return, it is, in certain circumstances, relieved of the obligation to file accompanying accounts. The state of the company’s financial affairs does not, therefore, become a matter of public record.
Furthermore, the unlimited company enjoys greater flexibility than its limited counterpart in undertaking capital reductions and in carrying out share redemptions or buy-backs.
Always Seek Advice
Despite the perceived advantages, the risks inherent in becoming a shareholder of an unlimited company are significant. Therefore, the unlimited company may not be the most suitable vehicle through which to conduct your business. Bearing this in mind, it is important to always exercise caution and seek expert legal advice before incorporating, converting to or acquiring shares in an unlimited company.