Limited by Guarantee

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What is a company limited by guarantee?

A company limited by guarantee is a type of business structure, and is most commonly used by non-profit organisations such as sports clubs, societies and charities. The personal assets of its members (guarantors) are protected from being used for company debts, and they are liable only for the amount agreed by their guarantees.

What is the difference between limited by guarantee and limited by shares?

The main difference between the two company types is that a limited by guarantee company lacks shareholders. Its members are instead those who agree to guarantee a sum of money in the event the company runs into financial difficulty. As such, members usually do not take profits from a company limited by guarantee – not for profit companies are therefore usually limited by guarantee, whilst profit-making companies are usually limited by shares.

What are guarantors?

Guarantors are individuals or other companies that provide a cash guarantee for a limited company in place of holding shares. The guaranteed sum is then used to pay off the company's liabilities if it is ever wound up.

Who can be a guarantor?

Any individual or company can act as guarantor - there are no statutory restrictions limiting eligibility, however the company's articles may make its own provisions as to who is acceptable.

How many people do I need to set up a limited by guarantee company?

Company formation requires at least one guarantor and one director. Both roles can be filled by a single person or multiple individuals and companies.

Can a guarantor also be a director?

Yes, one person can act as a guarantor and a director, providing they are aged 16 or over and not an ‘undischarged bankrupt’ or disqualified from holding a directorship role.

Who would form a company limited by guarantee?

Non-profit organisations such as clubs and charities, sports clubs and associations, schools, workers’ cooperatives and student unions usually benefit from this structure.

Are the profits paid to the guarantors?

No, in most cases the guarantors are not entitled to receive any profits. Such restrictions will be explicitly stated in the articles of association. Any funds generated will be put back into the business and used for the advancement and promotion of the company’s aim. Any company that does distribute its profits to members will forfeit any right to charitable status.

Do I have to include ‘Limited’ or ‘Ltd’ at the end of my limited by guarantee company name?

A company limited by guarantee will only be exempt from using ‘Limited’ or ‘Ltd’ if the company’s aims are not-for-profit and solely focused on the promotion of commerce, art, science, education, religion, charity or any profession.

What are the legal requirements for setting up a limited by guarantee company?

All limited by guarantee companies must have a registered office, memorandum and articles of association in order to register their new enterprise through Companies House. Details of all guarantors and directors must also be filed with Companies House and held in the public register.

Are different rules in place for setting up a charity?

Charities do not have to be registered as a company unless limited liability is sought. If this is the case, the organisation will be required to incorporate through Companies House as a limited by guarantee company, as well as registering as a charity with the Charity Commission (England and Wales) or Office of the Scottish Charity Regulator (OSCR) in Scotland. In order to meet the requirements of the charity regulators, it is commonplace for 3 members (known as trustees) to be appointed. Certain provisions must also be included in the articles of association that state the exclusively charitable aims of the company and the restriction of any profit distribution to its members.

How do I set up a limited by guarantee company?

All limited companies must be registered with Companies House. Rapid Formations is a Companies House e-filing partner, which means your company will normally be registered within 3 to 6 working hours, although this time-scale is dependent on Companies House workload and sometimes it may take longer.

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