Company limited by guarantee definition
Not at all like traditional limited liability companies, a company limited by guarantee has no shares or shareholders. Instead, the company's members give a statement of guarantee upon the formation of the company. This must be registered with Companies House.
A company limited by guarantee is generally a structure used by not-for-profit organizations (NGOs), social enterprises, or charities.
What is a statement of guarantee?
Each individual from a company limited by guarantee provides a statement. This sets out that t assume that the company is twisted up whilst they are a part, or within a year of them ceasing to be a part, they will add to the assets of the company. This is usually a specified and nominal amount.. This is finished to ensure:
The debts and liabilities of the company are paid
The costs, charges, and expenses of twisting up are covered
The contributions of the members are calculated and paid out
Forming a company limited by guarantee
The formation of a company limited by guarantee is essentially the same as one limited by shares. Either:
The company is framed from scratch, with incorporation documents such as the Articles of Association and a Shareholders' Agreement (if applicable) and the appointment of a director/s.
A shelf company (one that is incorporated yet not trading) is purchased, and the constitution is prepared to meet the members' requirements.
To incorporate a company limited by guarantee, you should register a Memorandum of Association and Structure IN01 with Companies House. Payment of a charge will also be required.
All companies limited by guarantee must have at least one guarantor and one director; this can be the same person.
Furthermore, you should give a physical address to your company and information about individuals with Significant Controls (PSCs) in the business. Usually, the directors and guarantors will be PSCs.
What is a person with significant control (PSC)?
A person with significant control (PSC) is someone who owns or controls your company. They are sometimes called 'beneficial owners'.
A PSC is someone who meets one of the under five conditions:
Owns over 25% of shares in the company (this won't apply to a company limited by guarantee)
Has over 25% of casting a ballot rights in the company
Can appoint or eliminate the majority of the board of directors
Exercises or has the option to exercise significant impact or control over the company
Has the option to exercise, or exercise, 'significant impact or control' over a 'trust' or 'firm' which is not a legal substance however would satisfy any of the four conditions referenced above in the event that it was an individual
Does a company limited by guarantee have to use the word 'limited' in its name?
It depends on the sort of company; in certain circumstances, the company may leave off "limited" in its name. Many charitable organizations choose not to have "limited" in their name. This is because it can give the impression of a more commercial enterprise and puts off potential benefactors.
Does a company limited by guarantee have shareholders?
In a company limited by guarantee, there are no shareholders, however the company must have at least one members.
Subject to any special provisions in the company's articles, the members will be qualified for attend general meetings and vote. In most companies, they can appoint and eliminate the directors and have ultimate control over the company.
Does a company limited by guarantee pay tax?
The same rules and regulations apply to companies limited by guarantee as to companies with a share capital. The previous must document accounts at Companies House, record annual returns, keep legitimate accounting records, appointed directors accurately and record returns with HMRC.
In the event that your company is registered with the Charities Commission andHMRC is probably not going to require a CT600, and you won't have to pay corporation tax.
In any case, you should follow the disclosure requirements and rules set out by the Charity Commission, the Charity SORP, and various charity legislation.
Can gurantors take a share of the company's profits?
There is no legal restriction on gurantors taking a share of a company's profits limited by guarantee. In any case, this seldom happens because most are set up for not-for-profit purposes. Instead, any profits generated by the business are taken care of back into the company to subsidize its not-for-profit activities.
In the event that members take a share of the profits, the company will lose its charitable status and associated tax benefits. To limit confusion, in the event that you plan for members to keep the profits generated by the company, it's a good idea to restrict the company by shares.
What are the advantages of a company limited by guarantee?
Forming a company limited by guarantee means:
The company is a separate legal element from its members and their liability for its debts is limited
Each part might be responsible for paying the company's debts up to the furthest reaches of their guranty
The organization will have professional validity, which can assist it with reaching its objectives all the more successfully
Still unsure of the benefits of a company limited by guarantee?
Our master charity lawyers would be happy to explain so you can understand how this kind of legal structure can assist you with achieving your not-for-profit objectives.
