There are many kinds of different companies, other than what they sell or produce, the company is also divided based on its ownership and the type of its company shareholder liabilities. In many parts of the world, a private company, and sometimes a state company is divided into Limited Company and Unlimited Company. What are their differences, and what is the definition for each of them?
In this article, we will show you the definition of both Limited company and Unlimited Company alongside their differences, and how you set up a company in Hong Kong. We will take Hong Kong as an example of how you should set up a company in Hong Kong, especially for both Limited and Unlimited companies.
What Is The Definition of Limited Company and Unlimited Company?
Most of the time, the differences between a Limited Company and Unlimited Company lie in the position of their shareholder, alongside their liability and obligations to the company. Some of us might have heard about the Limited Company because it is one of the most popular types, however, it might be quite rare to find or hear about the Unlimited Company.
The Limited Company is a company model where its shareholders aren’t responsible and are liable for the company's debts, or obligations. Meaning that any debts or obligations owed by the company aren’t the responsibilities of their shareholders. However, the company itself is still liable for every obligation and debt that it owes from third-party contracts.
As for the Unlimited Company, The unlimited company shareholders have unlimited liability, meaning that shareholders are responsible for every debt, liability, and obligation of the company, even when the company when bankrupt and cannot pay. The nature and responsibilities of the shareholders are determined based on the company’s constitution.
The Differences between Limited Company and Unlimited Company
From the point of view of the shareholders themselves, we can see the difference here. One of the key differences is in the shareholder position and liabilities. Normally, unlimited company shareholders have more power, but at the cost of more liabilities and responsibilities, whereas the limited company shareholders have less power, but they don’t have many obligations and liabilities from their company.
Here are key differences between Limited and Unlimited Companies, especially for privately owned companies.
- Minimum Capital requirement – For both private limited and unlimited companies, there has no minimum capital requirement to become shareholders, but for Public limited companies, there will be a minimum capital requirement.
- Limited liability for their shareholders – Private limited company will have limited liability and obligations for its shareholders, whereas an unlimited company has unlimited liability for its shareholder.
- Needing Publishing account – For the limited company, they will need a publishing account, but for the private unlimited company, usually, they won’t need it.
- Several maximum shareholders, and directors – Both Limited and Unlimited Company have their maximum number of directors with a minimum of one, and the shareholders also minimum of one shareholder.