Unlimited Company

Introduction:

This note will discuss an unlimited company as one of the types of companies in Ghana. The note will also discuss the two types of unlimited companies, peculiar details that are provided during the registration of an unlimited company, and the names of unlimited companies.

An Unlimited Company as a Type of Company in Ghana:

In Section 7(1)(c) of the Companies Act, 2019 (Act 992), it is provided that an incorporated company may be an unlimited company. In Subsection 2(c), an unlimited company is defined as:

a company which does not have a limit on the liability of its members;

The above provision may be understood with an illustration. Legum, an unlimited company, incurred a debt of Ghc 100,000 during its operations. The following may be said:

1. While Legum is still operating or a going concern, it is liable to pay its debts, as the company is an artificial person and can owe and be owed.
2. However, in the event of winding up, all the members of Legum are liable to pay all its debts. Their liability is thus not limited to the unpaid amount on their shares or to an amount they guaranteed to pay towards the assets of the company.

The above two points are reflected in the provision in Section 40(4) of Act 992 , which reads:

In the event of a company being wound up, every present or past member is liable to contribute to the assets of the company an amount sufficient for the payment of the debts and liabilities of the company and for the costs, charges and expenses of the winding up, and for the adjustment of the rights of the members and past members among themselves but subject to the following qualifications:…

The provision then goes on to limit the amount to be contributed by members of a company limited by shares to the unpaid amount on the shares, and that of members of a company limited by guarantee to the amount guaranteed by members to be paid towards the assets of the company. It, however, makes no such limitation regarding an unlimited company. Consequently, in the absence of such limitation, and in the event that the company is being wound up, every present or past member of an unlimited company is liable to contribute to the assets of the company an amount sufficient for the settlement of the debts and liabilities of the company.

It is also essential to note that even during its operations (thus when the company is not being wound up), some members of an unlimited company may be called to make some payments, and these may be used by the company to settle its debts. The reason for this is that an unlimited company is a company with shares, as Section 7(3) of Act 992 provides that:

an unlimited company shall, for the purposes of incorporation, be registered with shares.

In light of this, some members of an unlimited company may not have fully paid for their shares and can be called to do so during the company’s operations, and the amount can be used to settle the company’s liability. This is possible because of the provision in Section 40(1) of Act 992, which reads:

Before the winding up of a company, a member of the company with shares is liable to contribute the balance of the amount payable in respect of the shares held by that member in accordance with the terms of the agreement under which the shares were issued, or in accordance with a call validly made by the company.

Given that an unlimited company is registered with shares, its members are members of a company with shares. Those members who are yet to fully pay for their shares may be called to contribute the balance of the amount payable in respect of their shares, and this amount may be used to offset the company’s liability. To illustrate, X, a shareholder of Legum, an unlimited company, was issued shares worth Ghc 200,000. X paid Ghc 50,000 for the shares. During the course of its operations, Legum incurred a debt of Ghc 150,000. The effect of Section 40(1)(supra) is that Legum can call on X to pay the balance of Ghc 150,000 outstanding on his shares, and this amount can be used by Legum to settle its debt. Note, however, that if X had already fully paid for his shares before the debt of Ghc 150,000, the company, while still in operation, cannot call on X to settle its debts. Its members, however, would still be liable to pay all its debts in the event of winding up.

Finally, even for a company with debt, the members will not be called upon to settle the debt of the company if the assets of the company are sufficient to offset all liability.

Types of an Unlimited Company:

In Section 7(4) of Act 992 , it is provided an unlimited company can be private or public. In light of this, there are two types of unlimited companies:

1. A private company unlimited by shares.
2. A public company unlimited by shares.

The phrase “unlimited by shares” is there to emphasise that in the event of winding up, the liability of the members is not limited to the unpaid amount on their shares.

A private company unlimited by shares, per Section 7(5) , is one with a constitution that imposes the following four restrictions:

1. Restricts the right to transfer the shares of the company.
2. Limits the total number of the members and debenture holders to fifty, not including (i) persons who are genuinely in the employment of the company, and (ii) persons who, having been formerly in the employment of the company, were while in that employment, and have continued after the determination of that employment to be members or debenture holders of the company;
3. Prohibits the company from making an invitation to the public to acquire shares or debentures of the company; and
4. Prohibits the company from making an invitation to the public to deposit money for fixed periods or payable at call, whether bearing or not bearing interest.

Once the constitution of an unlimited company imposes the above restrictions, it is a private company unlimited by shares.

A public company unlimited by shares, per Section 7(7) of Act 992, is a company that is not a private company. Thus, its constitution does not contain restrictions on the right of transfer of shares; there is no limit of the number of members to fifty; the company is not prohibited from making an invitation to the public to acquire shares or debentures; and the company is not prohibited from making an invitation to the public to deposit money for fixed periods.

Registering an Unlimited Company:

In a previous note, we discussed the processes involved in the registration of a company. Here, we merely highlight what specific things ought to be done in registering an unlimited company.

In Section 7(3) of Act 992, it is provided that:

an unlimited company shall, for the purposes of incorporation, be registered with shares.

Upon such registration, the company is either a private company unlimited by shares or a public company unlimited by shares.

In Section 13(2)(n) of Act 992, an application for the incorporation of a company with shares must include the following details:

1. the amount of proposed stated capital, as defined in Section 68;

1. the number of authorised shares of the company for each class;

In Section 13(3) of Act 992, the application for incorporation is signed by the subscribers by writing, opposite their names, the number of shares they are taking and the cash price payable for the shares.

Names of Companies Unlimited by Shares:

In Section 21 of Act 992, it is provided that the last words of the name of a:

1. private company unlimited by shares shall be “Private Unlimited Company” or the abbreviation 'PRUC.’
2. public company unlimited by shares shall be “Public Unlimited Company” or the abbreviation "PUC.”

In light of the above, you may be given the following set of facts, and it is important that you identify the type of company based on its ending. Consider the following facts:

Legum PRUC., aiming to raise more capital, wants to place an advertisement in the Daily Graphic inviting members of the public to acquire shares. They have come to you for advice on how to proceed. Advice them.

From the above, it should be clear that Legum PRUC is prohibited from even inviting the public to acquire shares in Legum PRUC, because the abbreviation “PRUC” reveals that it is a private company unlimited by shares, and Section 7(5) of Act 992 reveals that its constitution prohibits it from inviting members of the public to acquire shares.