Hanover Company Services, Ground Floor, One George Yard, London, EC3V 9DF, UK
A company limited by guarantee is a not for profit entity and does not have a share capital. It is normally incorporated for people wishing their company to acquire a corporate status but will have non-profit making functions. This type of company may be used for people wishing to gain charitable status, for trusts, clubs, churches, schools, or professional and trade associations ie. a not for profit organisation.
As the limited by guarantee company operates without the aim of making a profit, there are no shares issued. This type of guarantee limited company has members instead of shareholders. Instead of buying shares, anyone who wants to be a member signs a form agreeing to pay a sum of money (for example £1). The members will have limited liability - the member’s liability is limited to the amount each member agrees to contribute to the assets of the company in the event of its being wound up, normally £1. This form is called the ‘guarantee’ and is legally binding.
The members agree to contribute a membership fee or subscription, normally have equal voting rights and elect a board of directors. Any profits are not distributed as dividends, but are put towards the company activities. To form a limited by guarantee company we require one object clause outlining the broad aim of the company, we then incorporate this statement into your Memorandum and Articles.
Unlike unincorporated associations and trusts, the guarantee company has a separate legal existence from its members. This means that, in its own right, it can employ people, own property, enter into contracts and sue or be sued in the courts. The directors, who are also defined in law as charity trustees if it is a charitable company, conduct the daily running of the business. The directors may call themselves a management committee, an executive committee, board of trustees or board of directors.