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Companies Limited by Guarantee: A Clear Guide


A company limited by guarantee is similar to a business limited by shares in that it has directors who are responsible for the day-to-day operations. If necessary, a corporate secretary can be appointed.

Members' responsibility is limited in the same manner as shareholders' liability is restricted, but it is not restricted to the value of the shares because a guarantee company does not issue shares.



Purpose of Forming Company Limited by Guarantee



A company limited by guarantee is essentially the same as a limited company, but with the apparent difference that there is no share capital. Members of the firm are guarantors rather than shareholders.

Charities frequently employ this type of business formation, though not all limited-by-guarantee corporations are charitable in nature.

Membership organizations and clubs, especially sports groups, are common types of organizations that opt for this sort of firm. This is because since gains cannot be given to members as a dividend, it is less likely to be employed by a traditional trading company.

Benefits of Forming Company Limited by Guarantee



A business limited by guarantee is a legal entity apart from its shareholders, accountable for its own debts. Therefore, the company's guarantors' personal funds are safeguarded. They will only be liable for obligations owed to the corporation up to the amount of their guarantees.

Other than this, clients and investors like 'limited' status because it fosters trust and confidence. This form of professional credibility is vital and may help a firm achieve its goals more successfully.

Drawbacks of Forming Company Limited by Guarantee



A change in directors, a change in the company secretary, or a change in the registration office must all be reported to Companies House. Similarly, yearly accounts and returns must be submitted.

If the organization is charitable, it must additionally file an annual report with OSCR and inform or get prior authorization from OSCR before making certain modifications.

Set-up fees can be more than for a charitable organization or trust, and yearly expenditures can be greater as well, especially if an external company secretary is hired and/or a formal audit is necessary.