Companies Limited by Guarantee
What is a Company Limited by Guarantee?
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.Companies limited by guarantee are private limited companies where the liability of the members is limited. A guarantee company does not have a share capital, but has members who are guarantors instead of shareholders. Limitation of liability takes the form of a guarantee from its members to pay a nominal sum in the event of the company being wound up while they are a member or within one year of their ceasing to be a member. The amount of money that is guaranteed can be as little as £1 and will be stated within the constitution of the company (the Memorandum & Articles of Association).There is excellent advice re all aspects of forming a company limited by guarantee from the volunteer development agency at ;
http://www.diycommitteeguide.org/index.cfm/section/news/key/SCTN2_DIYGUIDE_6
Why form a Company Limited by Guarantee?
Guarantee companies are useful for non-profit organisations that require corporate status. This means that its profits are not distributed to its members but are retained to be used for the purposes of the guarantee company. Non profit making is a bit of a misnomer - this does not mean that the guarantee company cannot make a profit, as indeed it is almost paramount that it can and does so - just that the profits will be used by the company in accordance with its aims. Where an organisation is likely to enter into contracts it may need the benefit of limited liability to protect its Board of Trustees and its members, who may be involved on a voluntary basis. The following are examples of these contracts
* Employment contracts
* Purchasing land, buildings or property
* Contracting with service or product providers
* Contracts with fund raisers
A guarantee company provides a clear legal identity. This provides the ability for the company to own property in its own name and a democratic structure where its participants are required to adhere to the strict laws and regulations governing limited companies generally.
You can fill in all the forms yourself to register your company for approx £20, or use any legal firm or on line service that will support you to do it - this usually costs between£ 60 -£200 depending on your choice of support. An up to date reference for all the forms and information is held at Companies House at ;
http://www.companieshouse.gov.uk/about/guidance.shtml
What is the constitution 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. At this point it is important to understand whether the company is to operate as a registered charity or not. 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 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. This is a brief overview to provide an understanding of the constitution of the company.
Payment of Trustees (Directors)
If you are forming companies limited by guarantee but do not intend to register as a charity then you can form the company using memorandum and articles of association that permit payment to Trustees for acting as trustees.
If you intend to register 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. However the charities act 2006 does allow for certain payments