As defined under clause (92) of section 2 of the Companies Act, 2013 (India) - an unlimited company means a company not having any limit on the liability of its members i.e. shareholders.
As the definition says, there is no limit on the liability of the shareholders of an unlimited company, hence, when the company is unable to pay off its liabilities (debts) fully and the official liquidation/winding up process starts, then the creditors will have a right to recover their payments due from the personal assets of the shareholders of the unlimited company.
As the liability of the shareholders is unlimited, this puts the shareholders of the company at greater risk, monetarily speaking.
Regardless of the percentage of shareholding of shareholders, they could be held responsible for paying off of the liabilities of the unlimited company.
• Since the creditors have more chances of recovering their money, it is easier for an unlimited company to convince their creditors and get the credit for running their business well.
• Because of the higher risk of losing assets personally, every decision taken in the company is more carefully evaluated and better management systems are put in place, hence, the chances of putting the business at risk is relatively less.
In India, a company can be formed and registered as an unlimited company under the said Act. Ref: Section 3(2)
Types of Unlimited Company
1) Unlimited company having a share capital.
2) Unlimited company having no share capital.
An unlimited company may convert itself into a limited company by alteration of memorandum and articles of the company by following due procedure and applicable provisions under the company law. Ref: Section 18 of the Companies Act.
Memorandum of Association (MoA)The Memorandum of Association of such an unlimited company can be as per Table D (for companies having no share capital) or as per Table E (for companies having a share capital). Ref: Schedule I of the Companies Act.
Articles of Association (AoA)The Articles of Association of such an unlimited company can be as per Table I (for companies having a share capital) or Table J (for companies having no share capital). Ref: Schedule I of the Companies Act.