{"id":15291,"date":"2019-04-09T11:15:47","date_gmt":"2019-04-09T05:45:47","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=15291"},"modified":"2022-09-05T18:27:51","modified_gmt":"2022-09-05T12:57:51","slug":"conversion-of-unlimited-liability-company-into-a-limited-liability-company-by-shares-or-guarantee","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/conversion-of-unlimited-liability-company-into-a-limited-liability-company-by-shares-or-guarantee\/","title":{"rendered":"Conversion of Unlimited Liability Company into a Limited Liability Company by Shares or Guarantee"},"content":{"rendered":"

The Ministry of Corporate Affairs (MCA) vide Notification dated 27.7.2016, The Companies (Incorporation) Third Amendment<\/a> Rules, 2016. Among all the amendments done, one of the principal changes was made to the Rules. The government inserted Rule 37, which talks about the provisions of conversion of unlimited liability company into a limited liability company <\/a>by shares or guarantee.<\/p>\n\n\n\n

Now\nin this article, we’ll be discussing the basics starting from the differences\nbetween Unlimited Liability Company and Limited Liability Company by shares and\nguarantee and later on, we’ll go into the procedural details about the\nconversion of Unlimited Liability Company into Limited Liability Company by\nshares or guarantees.<\/p>\n\n\n\n

\"definition\"<\/figure>\n\n\n\n

Differences between an Unlimited\nLiability Company and Limited Liability Company by shares\/ guarantee<\/strong><\/h2>\n\n\n\n

The Companies Act, 2013 in section 2(20) state any company which is incorporated under this act is called a company. It does not explicitly define a company by giving proper meaning. <\/p>\n\n\n\n

A\ncompany can be incorporated either as a Limited Liability Company by shares\/guarantee\nor as an Unlimited Liability Company.<\/p>\n\n\n\n

Section\n2(21) of the Companies Act, 2013 states, “Company Limited By Guarantee” means a\ncompany having the liability of its members limited by the memorandum to such\namount as the members may respectively undertake to contribute to the assets of\nthe company in the event of its being wound up.”<\/p>\n\n\n\n

And\na Limited Liability Company by shares, according to sec.2 (22) is, “a company\nhaving the liability of its members limited by the memorandum to the amount, if\nany, unpaid on the shares respectively held by them.” <\/p>\n\n\n\n

An\nUnlimited liability Company is a registered company having no limited\nliability. It has an AOA, directors, members, etc., but unlike the other companies,\nin this type of company, the shareholders are liable to add to the company’s\nassets without any limits. They have one major advantage over Limited Liability\nCompany i.e. they are not required to register its accounts but, then also\nthese companies are not that common.<\/p>\n\n\n\n

S.N.<\/strong><\/td>Unlimited Liability Company<\/strong><\/td>Limited Liability Company by guarantee<\/strong><\/td>Limited Liability Company by Shares <\/strong><\/td><\/tr>
1<\/td>It has unlimited liability and it is made for profit making<\/td>It is into nonprofit making business and is generally into providing specific service to the public.<\/td>These companies are into profit making and have general objectives.<\/td><\/tr>
2<\/td>The liability of each of the members is restricted to the total amount of debt of the company and the liabilities.<\/td>The members have a limited liability which extends to the amount for which they have agreed to guarantee.<\/td>The members have limited liability which extends to the amount unpaid on the shares held by the members, themselves. The liability is never restricted.<\/td><\/tr>
3<\/td>The share capital is not necessary. And therefore they may or may not have shareholders.<\/td>The share capital is not necessary. The company consists of members and not shareholders.<\/td>Share capital must be there. The owners of the shares are known as shareholders of the company.<\/td><\/tr>
4<\/td>The Profits are distributed as dividends to the shareholders.<\/td>The whole profit is retained by the company or used for other purpose and not given to the shareholders.<\/td>The shareholders are given profits as dividends.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Rules for Conversion of Unlimited\nLiability Company into a Limited Liability Company by Shares\/Guarantee<\/strong>\nProvision\nas per amended rules<\/strong><\/h2>\n\n\n\n

The newly inserted Rule 37 of The Companies (Incorporation) Third Amendment Rules, 2016 talks about the conversion of Unlimited Liability Company into Limited Liability Company by share\/guarantee. <\/p>\n\n\n\n

Following\nare the relevant provisions under Rule 37-<\/p>\n\n\n\n