Limited By Guarantee Explained

Companies limited by guarantee

There is a lot of information pertaining to companies limited by guarantee below we have selected the main questions asked about this type of company, should you not find the answers you are looking for please contact our office direct 0203 189 1314 or email us using the contact form.

1). What is a Limited By Guarantee Company ?

A Private company limited by guarantee: This company does not have a share capital and its members are guarantors rather than shareholders. The members’ liability is limited to the amount they agree to contribute to the company’s assets if it is wound up usually £1. Limited By Guarantee

2). Who uses Limited By Guarantee Companies ?
They are widely used for charities, community projects, clubs, societies and other similar bodies widely regarded as non-profit making organisations. Limited By Guarantee

3). Why use a guarantee company?
Popular reasons for a registering a guarantee company is to create a community project, club, or society, etc., to be a guarantee company is to protect the people running the company from personal liability for the company’s debts, just as a business may be set up as a company limited by shares for the same reason. Sometimes funding bodies, such as local authorities, insist on an organisation being registered as a company limited by guarantee. Limited By Guarantee

4). What is different about a guarantee company?
A guarantee company is very much the same as a limited by shares in that it must register its accounts and annual returns each year, it has directors who control the company etc. A major difference is that it does not have a share capital or any shareholders, but members who control it. Limited By Guarantee

5). Why should I choose a guarantee company over a limited by shares company?
The finale decision must always lie with those setting up the company, however when making your decision 2 main points you should consider are; is the company predominantly there as a buy and sell a product or to offer a charitable service? If you are a buy and sell then limited by guarantee is probably not the right choice, if you are to offer a service a charitable nature then a guarantee company is most probably the correct company to register. Limited By Guarantee

6). What are Trustees?
Trustees have overall control of the company and are responsible for making sure it’s doing what it was set up to do. They may be known by other titles:

board members
committee members

Whatever title they have in a particular guarantee company or charity, trustees are the people who lead the charity and decide how it is run.

Most trustees don’t get paid for their role – they act out of a desire to help people and make positive changes. Volunteering as a trustee should be rewarding and enjoyable.Limited By Guarantee

7). Can anyone become a Member of a Limited By Guarantee ?

Just like any club it is up to each Company to decide who can and cannot be a member and how and in what form they can apply for membership. This is spelt out in the Memorandum and Articles and some companies set up Membership Committees. It is important to note that to be eligible for most types of grant funding votes must be taken on a “one member-one vote” basis. However it is possible to have non-voting “associate” members, so, for example, a male-voice choir could have female (non singing) associate members. But as ever check for anti-discrimination legislation. Limited By Guarantee

8). How many Directors do I need ?

To register a limited by guarantee company the lgally required number of directors is one, and one member director and member can be one of the same, there is no requirement for a secretary. Limited By Guarantee

9). What is the difference between a Member and a Trustee?

Trustees are the same as members and subscribers. Limited By Guarantee

10). Is a Guarantee Company the same as a Charity ?

Although both entities strive to serve communities, clubs and other charitable services, each are regulated quite differently.
Charitable companies (those incorporated as a company limited by guarantee) must comply with provisions in the Companies Acts 1985, 1989, 2006. Additional requirements include filing details of trustees as directors at Companies House.

The legal obligations of charities under the Charities Acts and the Companies Acts

All charities must comply with:

the Charities Acts 1992 (Part III), 1993, 2006: trustees of smaller organisations 2006 Act (the Office of the Third Sector)
the Trustees Acts 1925, 2000: the most recent Act concerns the powers of trustees regarding investments and delegation.
Charity Commission regulation: requires compliance (depending on annual income) on the submission of annual returns, reports and accounts the Statement of Recommended Practice (SORP) 2005: published by the Charity Commission laws on trading, political activities and fundraising regulation covering people who are disbarred from acting as trustees under the Charities Act 1993 or your Memorandum and Articles. Limited By Guarantee

11). Can I change my Guarantee Company into a Charity ?

Yes. All Charities must start life as a registered limited by guarantee company Limited By Guarantee

12). Can I change my Guarantee Company into a CIC ?

Yes. This is a common way to form a CIC (community interest company), many directors find the charitable commitments to great for a stand alone guarantee company but don’t require the status of a full charity but find the advantages of the CIC a perfect compromise. You can also switch your CIC to a charity the 2 are very different in structure and seldom is this request made. Limited By Guarantee

13). Can I change my Limited by Shares Company into a Guarantee Company ?

There is no statutory procedure for re-registering a company limited by shares to a company limited by guarantee. It is not possible to to convert the same corporate entity from one type of limited liability to the other. It is possible, however, to create a new company limited by guarantee under the same name and then to transfer the undertaking and assets from the ‘old’ company to the new one. The new company will be a separate legal entity, with a different company number from the previously existing company. It will need a new VAT registration and existing long-term contracts, such as leases, bank arrangements, etc. will have to be renewed or assigned. Limited By Guarantee

14). Distributing profits/commercial status

As there are no shares any company profits cannot be distributed to the members as dividends; members also cannot have claim upon company assets

The articles usually include a clause prohibiting distribution of surplus profits but rather to reinvest them such that all profits are applied to the purpose for which the company was established (see GD1 clause 6 (3)). In the event of winding up all assets are usually passed to another charity (see GD1 clause 58)

Payments to board members can only be as remuneration (unless repayment of expenses only) and not dividend.

If the CLG is a charity the Charity Commission has strict guidelines regarding payment to board members/trustees. Limited By Guarantee

15). What are objects?

The objects set out what a company limited by guarantee (charity) is set up to do. They should therefore be described clearly and unambiguously in the governing document, using words with a commonly accepted meaning. A charity may have more than one object.

It is important to remember that if you intend to register as a charity:

all of the objects must be charitable, because if any aspect of them is not, the organisation cannot be accepted as a charity because it will not be exclusively charitable;

the objects should reflect what the organisation intends to do; and the objects should be understandable.

Tailoring your company’s objects carefully will also assist you in obtaining funding from other associations or government bodies as they will be able to clearly see your intended objects in the constitution. Limited By Guarantee

16). Membership fees

The articles may provide for a member to pay a joining fee or an ongoing membership fee, but this is not essential.
The charging of a membership fee is a useful way for a company limited by guarantee to generate income. If the fee
is to be ongoing then the basis on which the renewals will be due should be stated in the company’s articles. Limited By Guarantee

17). Accounts and tax position

The accounting, tax treatment and filing deadline rules are exactly the same as for a company limited by shares (i.e. CT600 return, accounts to HMRC and Annual Return and Accounts to Companies House) except:

no share capital is shown on the balance sheet. A note should state that the company is Limited by Guarantee the final line on the balance sheet to read ‘Reserves’ and not ‘Shareholders Funds’ as Companies House have been known to reject if incorrectly described. Any excess of income over expenses is referred to as ‘Surplus’ not ‘Profit’
If the company is a registered charity, the Charity Commission rules must be complied with. Limited By Guarantee top

This is a general advice note giving an indication of the main responsibilities of both members and directors of companies limited by guarantee. For further information, please contact Companies House

or the Charity Commission: Limited By Guarantee

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