Companies limited by guarantee are commonly utilised by charities, community organisations, clubs, and societies. The majority of guarantee firms are non-profit organisations, meaning that they either maintain their profits inside the organisation or use them for another purpose. Most of these organisations require that their articles be written specifically for their organisation. In this article, what is a company limited by a guarantee UK, we take a look at the process involved and the options available to you.
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What is the difference with an ordinary limited company?
A company limited by guarantee resembles an ordinary private company limited by shares. It is registered with Companies House, must file yearly accounts and a report, and has directors. A significant difference is that it does not have a share capital or shareholders, but rather it is controlled by its members.
Does a company limited by guarantee have directors?
As a private company, a company limited by guarantee must have at least one director. The majority of guarantee businesses have many. Alternate titles for the board of directors include committee, management committee, board of managers, trustees, and governors. Regardless of their title, if they govern the day-to-day operations of a company, they are legally considered to be its directors. Their powers depend on the wording of the company’s articles of incorporation, but they are often granted broad management authority. Similar to a company limited by shares, these powers are granted to the directors collectively when they are sitting as a board and passing resolutions for the firm’s management. They may, of course, establish subcommittees and delegate authority to them, as well as assign special obligations to some directors, such as treasurer or membership secretary.
In some companies, some or all of the board members may be appointed by an outside organisation, such as a charity or local government that is supporting the initiative. Some directors may be elected by organisations with specific interests.
What are the implications of having no shareholders?
There are no shareholders in a company limited by guarantee, but the firm must have at least one member. Subject to any special provisions in the company’s articles, members will have the right to attend and vote at general meetings, which in most cases means they have ultimate authority over the company and can appoint and dismiss directors. Companies limited by guarantee generally adhere to the company law regulations regarding general meetings, resolutions, etc. applicable to ordinary share companies.
Similar to how a business limited by shares may have several classes of shares, a guarantee company may have different classes of members. There may be members with restricted rights, such as non-voting members or members with other restrictions.
What are the implications of having no share capital?
The inability of a business limited by guarantee to have share capital restricts its ability to raise funds, as it cannot issue shares to individuals who support and join it. Some enterprises that are not fundamentally profit-driven are therefore structured as limited liability companies. Many of these businesses need subscriptions and/or initiation fees. A guarantee company may borrow funds and issue debentures or loan stock.
Since there are no shareholders, it is not possible to own a business limited by guarantee in the same manner that shareholders own a company with a share capital. The members of the guarantee company control it in the same manner that shareholders control a share business, but they do not own shares or other transferable securities.
Are there issues with liability for those running the business?
If a charity, community project, club, etc. is not registered as a limited liability company its administrators (usually the management committee or a similar organisation) might be held personally accountable for any unpaid debts. This is a potential risk. Some charities, community organisations, sports clubs, etc. might be major enterprises with unavoidable liabilities. They may have leased property, employees, equipment on loan agreements, etc. If the income is insufficient to cover these expenditures, the organisation may become insolvent, and those in charge may be held personally accountable for the shortfall (though normally not the members at large who are not on the committee). This may occur as a result of unplanned and unfortunate events, such as the sudden removal of financial support from an organisation such as the local government.
In the case of a company, however, the business itself is a separate legal entity and is responsible for its debts, not its owners or managers. In a business limited by shares, the liability of the shareholders is limited to the purchase price of their shares. In a business limited by guarantee, the liability is restricted to the sum of the guarantee specified in the articles of incorporation, which is often just £1.
In both a company limited by shares and a company limited by guarantee, the directors will only be held personally liable for the company’s obligations if they have committed an act of misconduct, such as illegal or fraudulent trade.
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We have a proven track record of helping clients deal with the process involved in setting up companies limited by guarantee. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of corporate services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/corporate-legal-services/
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It is important for you to be well informed about the issues and possible implications of setting up a company limited by guarantee. However, expert legal support is crucial in terms of ensuring your business is set up correctly.
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Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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