Company law revision question and answer

Tim and Tom wish to establish a business jointly. However, they are not sure whether to establish a limited liability company or an unlimited liability company; as they know little about these types of companies.

i) Explain to them the differences between a limited company and an unlimited company. (4 marks)
ii) State the provisions of the Companies Act regarding the re-registration of unlimited company as limited.

ANSWER
Limited Company: This is a registered company whose liability is limited byshares or guarantee. It means that member‟s liability to contribute to the assets of the company is limited either:
i) To the amount outstanding on their shares, if any, or
ii) To the amount they undertook to contribute if the company was wound up during the currency of their membership or within one year of cessation of membership beyond which they are not liable.

Unlimited Company: This is a registered company whose liability is unlimited.Under section 4 (2) (c) of the Companies Act members are liable for the debts of the company without any limitation. Creditors may sue members for the debts of the company if the company is unable to pay. Private assets of members may be attached creditors to the company.

Under the provisions of the Companies Act a company registered as unlimited may be re-registered as limited upon application. Such registration does not affect the rights or liabilities of the company in respect of any debt or obligation incurred or any contract entered into by, to with or on behalf of the company before the registration.
Upon registration the registrar shall close the former registration of the company and may dispense with the delivery to him of copies of any document copies of which he was furnished on the occasion of the original registration of the
company.
 However, the registration shall take place in the same manner and shall have effect as if it were the first registration of the company under the provisions of the Act.

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