Company limited by guarantee

Company limited by guarantee
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A Company limited by guarantee is a type of company which does not have a share capital and has no right to issue shares. Without the share capital, the company's funds usually rely on external sources such as donations, membership subscriptions or government grants[1].

These companies have been in existence since 1862 and until 1981 it was possible to establish a company limited by guarantee with share capital[2].

Because companies limited by guarantee do not possess a share capital they must be registered as public companies and must add word “Limited” to the company name[3].

A Company limited by a guarantee is one of the forms of business organization on the basis of liability. Other examples of such companies are companies limited by shares and unlimited companies[4].

Uses[edit]

This type of incorporation is commonly used by entities with small initial capital needs, for example, social, welfare and non-profit organizations[5].

The form is commonly used for[6]:

  • membership organizations, including, residential property management companies, students' unions, workers' cooperatives, sports associations, other social enterprises,
  • charities,
  • non-governmental organizations,
  • educational institutions like the London School of Economics.

Members[edit]

The crucial legal difference of the company limited by guarantee is that it has guarantors as a substitute for shareholders[7]. Members (the guarantors) of the company limited by guarantee undertake that if the company is shut down they will contribute a certain amount to the company’s property. The liability of the members appears only if the company does not have sufficient assets to meet the obligations. Members are not obliged to pay any capital to the organization while it is an operating concern[8].

All profits made by a company limited by guarantee are therefore part of the company and are not distributed to its members. If it is a charitable organization, the profits would be donated to the charity[9].

Footnotes[edit]

  1. Bottomley S., McQueen R., Tomasic R., 2002, p.174
  2. Bourne N., 2013, p.7
  3. Bottomley S., McQueen R., Tomasic R., 2002, p.174
  4. McLaughlin S., 2015, p.46
  5. Bottomley S., McQueen R., Tomasic R., 2002, p.174
  6. Bourne N., 2013, p.7
  7. Buckley G., Desai S., Trapp R., 2011, p.24
  8. Bottomley S., McQueen R., Tomasic R., 2002, p.174
  9. Dine J., Koutsias M., 2009, p.10

References[edit]

  • Bottomley S., McQueen R., Tomasic R., (2002), Corporations Law in Australia, Federation Press, Sydney,
  • Bourne N., (2013), Bourne on Company Law, Routledge, Abingdon,
  • Buckley G., Desai S., Trapp R., (2011), What You Need to Know about Business, Capstone Publishers, Chichester,
  • Dine J., Koutsias M., (2009), Company Law, Palgrave Macmillan, Basingstoke,
  • McLaughlin S., (2015), Unlocking Company Law, Routledge, Abingdon & New York.

Author: Angelika Marzecka