An exemption from filing financial statements with the Companies Registration Office (CRO) can make an unlimited company attractive to business owners who want to keep their financial information private. However, converting an LTD to an unlimited company does not automatically mean that the company can claim this filing exemption.
The ownership and group structure must be examined carefully. Shareholders must also understand that they will be giving up the protection of limited liability.
So, what are the requirements and what should a company consider before converting to a private unlimited company (ULC) and why planning ahead is important?
What is an unlimited company?
Unlike an LTD company, ULC’s shareholders do not have a limit on their liability to contribute to the company’s assets if the company is wound up. Where the company cannot meet its debts, shareholders’ personal assets may therefore be at risk. It is important to note that directors do not have limited liability protection regardless of the company type.
Can all unlimited companies claim the filing exemption?
A non-designated ULC is exempt from attaching financial statements to its annual return. A designated ULC (and PLC) cannot claim the filing exemption.
The main circumstances that make a designated ULC:
- Being a subsidiary of a limited undertaking at any time during the relevant financial year.
- Being controlled through rights held by two or more limited undertakings which, if held by one, would make it a subsidiary.
- Being a holding company of a limited undertaking at any time during that year.
- Being a credit institution, an insurance undertaking or the holding company of either.
- Having the corporate or partnership ownership arrangements specified in section 1274, including indirect structures through which the ultimate beneficial owners enjoy limited liability. Comparable foreign entities are also covered.
The holding-company rule applies to financial years commencing on or after 1 January 2022. A ULC owned by individuals can therefore still be required to file financial statements if it has a limited liability subsidiary.
For example, a standalone ULC owned directly by individuals, with no limited subsidiaries and no other designated features, would generally qualify for the filing exemption. If it acquires a limited subsidiary during the year, it becomes designated ULC for that year, even if the subsidiary is sold before year end.
A non-designated company must file a B1 Annual Return every year and if the ULC is not entitled to claim audit exemption, an auditors report must be attached to the B1.
Directors should review the position each year and before any acquisition, share transfer or group reorganisation to ensure the company still satisfies the filing exemption criteria.
What is the timeline for converting to unlimited?
An LTD company has 3 months from filing its B1 Annual Return and financial statements to make an application to re-register as an ULC. An exception applies where the company was incorporated in the previous three months.
Otherwise, the application must include financial statements covering at least 12 months and ending no more than three months before the application date.
Missing the three-month window does not prevent the re-registration. However, it can mean preparing and filing more recent financial statements with the application. Companies seeking greater privacy should plan ahead, before the financial information they wish to keep private must be filed.
How can CLS help?
CLS can assist with reviewing the company structure, advising on the re-registration requirements, preparing the new constitution and resolutions, and completing the CRO application. If you are considering converting to an unlimited company, please feel free to contact our Company Secretarial Team on 059 9186776 or email cosec@clscs.ie. We would be delighted to help.
NB: The content of this article is provided for information purposes only and does not constitute legal or other advice.
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