Organisations that will be non profit organisations but will still require a corporate status will normally be set up as a private company limited by guarantee. Most companies whether set up for commercial or charitable purposes will be limited by shares or by guarantee. Private limited companies that are limited by guarantee will have no shares because there are no shareholders. The company will have members instead who will be bound by a guarantee that will be detailed in the company’s articles of association. The guarantee will require the members to pay the company’s debts which will be a fixed amount which is normally set at £1. This type of company structure is suitable for trade associations, charities, societies, education institutions and clubs.
A private company limited by guarantee has guarantors rather than shareholders. The members in control have limited liability that is limited to the amount that they have agreed to contribute should the company be wound up. For charities and non profit organisations, members do not take any shares or profit. Any revenues that are made will be placed back into the organisation.
When to use a company limited by guarantee?
If you are setting up a community or charity that will be a non profit organisation then this is the company structure required. This will help protect all personnel who are responsible for running the company from having any personal liability for the company’s debts. Some charitable organisations can be huge enterprises and liabilities cannot be closed off so easily such as leasehold for the premises, equipment and financial costs and employment costs. The management responsible for the running of the company could be liable if for any reason the company becomes insolvent. This may happen if financial support was suddenly withdrawn so by ensuring that the company is limited by guarantee, all members and those running the company will be protected. If an organisation is being funded by a local authority then in most cases they will insist that the organisation is registered as a company limited by guarantee.
Registering a company limited by guarantee?
Registering a company Limited by guarantee will be set up in the same way as a company that is limited by shares. The online company formation process is exactly the same with incorporation taking just 3 hours when competed online with a formation agent such as Company Formations 247. Forming a company limited by guarantee will require the following details;
- At least one company director
- Minimum one guarantor.
- Company must have a registered office address in the residing country where the company is formed.
- Details of company’s objectives, members who have limited guarantee and details of any non-profit distribution clause.
- Personal details of directors
- Details of all guarantors
- Information outlining how the company should be run including the rights of the directors and guarantors.
Depending on how you intend to run the company, you may have just one person or multiple persons operating as guarantor and director. For companies looking to set up as a charity, you must register with the Charity Commission if in England or Wales. If registering a charity in Scotland then you will be required to contact the Office of the Scottish Charity Regulator or (OSCR) as well as registering your company with Companies House.
John Harkin is a company formation agent for Company Formations 247. John and the Company Formations 247 team have helped incorporate over 100,000 new companies within the UK. For more advice and guidance on setting up a new company, simply visit our website today.