Clause 44.—(UNLIMITED COMPANIES MAY BE RE-REGISTERED AS LIMITED.) (Hansard, 19 July 1967)

§ Mr. Michael Shaw
I beg to move, Amendment No. 107, in page 45, line 3, to leave out from the beginning to 'may'.
This Amendment also, to a certain extent, was touched on in our deliberations in the Standing Committee, and I think we raised an important point in those discussions. I hope that, as a result of that, the right hon. Gentleman is now able to concede the point.
The position is that under Clause 43 the Bill allows limited companies to become re-registered as unlimited. This is done, as I understand it, specifically because it is accepted that a considerable number of additional burdens with regard to disclosure will be placed on companies in the future, when this Bill has gone through. As a result, it was felt—I think, quite rightly—that there might be many small companies which might prefer to adopt an unlimited status, rather than make the disclosures which would be necessary in future. So the Bill, in Clause 43, envisages that companies should be able to switch to an unlimited status. Then in Clause 44, which we are now discussing, the opportunity is taken of facilitating companies, both those which were unlimited in the past and 2375 those coming into being as unlimited companies in the future, allowing them at a later date to transfer into the limited field, as it were.
But there is one exception to this permission, and that is where a company has taken advantage of Clause 43 and become unlimited; it is no longer able to avail itself of the following Clause so that it can at a late date become limited in its liability. We believe that this is entirely wrong. We believe that the whole object of Clause 43 is to allow limited companies to put themselves into exactly the same position as other, unlimited, companies are. The facts are clear. There is a completely new situation, and they now have at this moment to decide whether or not they want to change their condition in view of the different obligations which are being imposed upon them, and so they are entitled to go to an unlimited status, and we believe that, in going to that unlimited status—and in being encouraged to go to that status if they so desire—they should be in no worse position than are other unlimited companies.
Curiously enough, I came across a company only yesterday that was probably going to be unlimited. I had never come across one in my professional life before, and this particular company had, in the past, been unlimited. In recent years it became a limited company, and I was informed that it was thinking seriously of going back to its unlimited status. Unfortunately, I had to explain that the right, under Section 16 of the principal Act, at a later date to become limited would not be available to this company if it jumped back to its unlimited status, because of Clause 43 of his Bill.
This, we think, is most unfair, and the words which we seek to be left out of Clause 44 are to be left out so that those companies opting to become unlimited, should have the same rights as other companies if, at a later date, they should desire to become limited. I do not believe that the statement that companies will alternate is valid because companies cannot stand still or hover. They go up hill, or they go down. That is certain and this Amendment should be accepted. I recommend it to the House.

§ Mr. Darling
I agree profoundly with the hon. Gentleman when he says that it is not likely that a company will change backwards and forwards from limited to unlimited status and from unlimited to limited. He did not, as I thought he would, refer to the fact that there would be problems of Capital Gains Tax, and other fiscal problems and, in that context, the way to put the matter right would be to make the appropriate Amendments in the Finance Bill. We can look at the fiscal difficulties in relation to that, but I fully agree that companies cannot switch about in the way which he has suggested.

Mr. Gresham Cooke
As a director of an unlimited company, I do not think that there is an intention, generally, to switch backwards and forwards but I must remind the Minister of State that conditions change, and I could envisage that this could happen. It ought to be put right at some stage. There could, I agree, be provision in the Finance Act or otherwise, but circumstances and conditions might necessitate a change.

§ Mr. Corfield
I fully accept that it is not desirable for any company to jump in and out of limited status or unlimited status, as the case may be. I accept that, but this Clause means that at no time in the future can any company which became unlimited by virtue of Clause 43, ever become limited again. There seems to be an absolutely indefensible discrimination against that type of company compared with all the other unlimited companies.
I should be perfectly satisfied with a promise that this will be put right in the next Bill. This is the one occasion on which I could be satisfied with such a promise, because I shall not worry in the least if a company becomes unlimited next year and does not apply to become limited again for the next two or three years. This is something which can be put right in the next Bill without doing any damage in the meanwhile, and this is perhaps the first provision of which we have been able to say that.
If the right hon. Gentleman could give us the assurance that some sort of provision will be made after three or five years, or something of the sort, that the ban on companies becoming unlimited will cease 2377 to bite, we shall be very happy and no harm will be done in the meanwhile.

§ Mr. Darling
I can certainly give the assurance that we will consider this matter for the next Bill, when we will have had a little experience of what happens in practice.

§ Mr. Michael Shaw
In those circumstances, I beg to ask leave to withdraw the Amendment.

§ Mr. Darling
I beg to move Amendment No. 218, in page 45, line 31, to leave out from first 'to' to the end of line 33 and to insert: 'the condition of the company as to those matters which will obtain upon its re-registration'. This is a drafting Amendment. The point is that an unlimited company which wishes to re-register as a company limited by guarantee will have to pass a special resolution providing for the making of such alterations in its memorandum and such alterations in and additions to the articles which are required to bring the memorandum and articles into conformity with the requirements of the principal Act.
What we are here doing is to make sure that the conditions as to the mode of limitation, liability and possession of share capital will be similar to the condition of the company in these matters obtaining upon the re-registration of the company. It is a drafting Amendment which puts right something which needed to be put right.