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UK Companies Limited by Guarantee Key Facts
• Companies limited by guarantee are private limited companies where the liability of the members is limited. This means that directors or trustees, officers, and members are typically not personally responsible for the debts and liabilities of the nonprofits organisation. A Company Limited by Guarantee means that an organisation becomes incorporated as a legal entity in its own right. This means agreements and contracts can be taken out in the name of the company rather than the name of individual trustee(s).
• Like a private limited company, a company limited by guarantee must include the suffix "Limited" in its name except where the company does not distribute profits.
• Incorporation takes 8 -10 working days after the Registrar receives the application for a new company. A same-day service is also available for an increased fee.
• Companies limited by guarantee do not normally have to pay income/corporation tax capital gains tax, or stamp duty and gifts to charities are free of inheritance tax.
• These entities are primarily used for non-profit organisations that require legal personality. A guarantee company does not usually have a share capital, but instead has members who are guarantors instead of shareholders. The guarantors give an undertaking to contribute a nominal amount (typically very small) towards the winding up of the company in the event of a shortfall upon cessation of business.
• The members of the company may appoint Directors often called 'Trustees', who are given the responsibility for creating and implementing policies for the company. The Directors also enjoy limited liability, provided that they have not acted negligently or fraudulently.
• The company must have at least one director and a secretary, a director may also act as the company secretary, but only if the company has two or more directors, there must be at least one subscriber, the registered office of the company must be located within the United Kingdom.
• There is no requirement for the officers of the company (director, secretary) to be UK citizens.
• Profits are not distributed to its members but are retained to be used for the purposes of the guarantee company. The members of the company do not own the company but are the decision makers for the company. This means that the profits of the company cannot be distributed to the members through dividends and that they do not have any claim upon the assets of the company.
• The constitution of the company limited by guarantee is the Memorandum & Articles of Association. The Memorandum sets out the objects of the company and the powers of the company may be exercised to meet these objects. If the company intends to register as a charity, then the Memorandum must be acceptable to the Charity Commission. The Memorandum will also state how much money the members of the company will guarantee to pay in the event of the company being wound up.
• 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.
• The Articles of Association state when meetings of the company will be held and proceedings of the meetings. They also state the voting rights of members, number of trustees and the powers of the trustees. The Articles also include the procedures for appointing and retirement of members and trustees.
• If you are forming a company limited by guarantee but do not intend to register as a charity then it is recommended using a memorandum and articles of association that permits payment to Trustees for acting as trustees. If you intend to register the company as a charity then the Charity Commission has strict guidelines regarding payment of Trustees. In most cases it is not recommended to allow payment for acting as a Trustee as this is seen as a conflict of interest, unless the possibility of personal benefit which gives rise to that conflict, is transparent. Transparency is achieved by requiring explicit authorisation of the benefit, and by ensuring any potential conflict of interest is properly and openly managed.
• The concept of unpaid trusteeship has been one of the defining characteristics of the charitable sector, contributing greatly to public confidence in charities. However, there may be circumstances in which it is in the interests of a charity for one or more of the trustees to be paid. If this is to happen, trustees will first need to consider whether or not the governing document of the charity contains a power to pay trustee.
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