Companies Limited by Guarantee are companies that do not have a share capital but still benefit from limited liability.
The members of a Company Limited by Guarantee are known as ‘Guarantors’ as their liability is limited to a nominal amount specified in the Articles of Association that they each guarantee to contribute to the debts of the company in the event that it is wound up.
Companies Limited by Guarantee are most often used by non-profit organisations such as charities, clubs, trade associations and educational establishments
As there are no shares, the members of a Limited by Guarantee Company do not own the company and you would usually expect the Articles of Association to prohibit the distribution of assets to the members.
Instead the profits of the company should be used to further the objects of the company or, in the event of a winding-up with residual assets, these should be transferred to another non-profit organisation with similar objectives.
These clauses can be removed or amended by the members and it is feasible that a Company Limited by Guarantee could be adapted to enable distributions to the members, but this would mean that that the company would lose any non-profit status and certainly could not qualify as a charity.
Although the Companies Act 2006 removed the requirement for a company to specify its objects in the Articles of Association, it is still commonplace for a Company Limited by Guarantee to have an objects statement included within its Articles of Association. This is because it can be beneficial, when trying to raise funds or attain charitable status, to show that the objects of the Company are for the public benefit.
A Company Limited by Guarantee must have at least one director and one guarantor and is required to file an Annual Return (soon to be an Annual Confirmation Statement) and Annual Accounts with Companies House.
A Company Limited by Guarantee can be exempt from using the word “Limited” in its name provided the objects of the company are the promotion or regulation of commerce, art, science, education, religion, charity or any profession incidental or conducive to any of those objects, and provided that the Articles include the non-profit distribution clauses above. Not having the word “Limited” in a company name is a quick indicator that the company is formed for public benefit and not for the benefit of its members.
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