UK Limited Company by Guarantee
Charitable (Non-For Profit) Entities
The unique quality of a Company Limited by Guarantee
UK Company Limited by Guarantee typically operate for the benefit of their members, who are often associated with an organization or club. In these companies, individuals known as ‘guarantors’ commit to a specific amount they will personally contribute in the event the company faces financial difficulties and incurs debts. Members can even opt to provide an unlimited guarantee, making them responsible for all the company’s debts. The primary objective of such companies is usually to promote the organization, and dividends are not typically distributed to members. However, members may receive salaries, bonuses, and expense reimbursements for their services.
Unlike commercial trading companies, UK Companies Limited by Guarantee are not primarily profit-driven and often seek to raise funds for the benefit of others. They have the flexibility to acquire charitable status and secure funding, or they can operate as members’ organizations without seeking charitable status.
Company Limited by Guarantee can also be formed by property owners aiming to provide collective services to their properties, with only property owners being members. It is common for groups of flat owners to establish guarantee companies to manage all shared expenses. Often, the company’s name reflects the property it serves, such as ‘Mayflower Flats Management Co.’
In the context of clubs or associations, only the initial members typically provide the guarantee, and the company can decide whether new individuals join as regular members or guarantee members. In the latter case, guarantee members need to be formally added to the list of company members, while the club or association maintains its separate membership list and rules.
A UK company limited by guarantee involves members providing a personal guarantee to pay a specified amount to creditors if the company encounters financial difficulties. This guarantee can be as minimal as £1 per member.
The Advantages and Disadvantages of a Company Limited by Guarantee
Guarantee Liability
In the event of business failure, a modest guarantee can safeguard the company’s owners from personal financial loss or bankruptcy. Unless a separate guarantee is provided for a particular transaction or illegal activities have taken place, the debts are the company’s responsibility, not the individual members’.
The advantage of protection from personal financial loss becomes more pronounced as the business takes on greater commitments to operate and expand.
A Unique Trading Name
When a company’s name is registered, it must be distinct and unique. As long as the company is in existence, its name cannot be replicated by any other entity. You have the choice to include ‘limited’ at the end of the company name or leave it out entirely, provided the company’s objectives promote commerce, art, science, education, religion, or a specific profession.
Establishing a UK Company Limited by Guarantee in Practice
A Unique Name
The company name must not be identical to any other existing company.
The Right People
Members
A company must have owners, which can be as few as one member but typically involves at least two. These owners, technically referred to as members, commit to clearing debts up to a predetermined amount.
Managers ‘Officers’ or ‘Directors’
Owners must appoint officers to manage the business, ensuring compliance with the Companies Acts. These officers typically serve as directors, and in most companies limited by guarantee, directors also act as members. A company must have at least one director and a company secretary, with the possibility of one individual serving both roles.
Company Secretary
Members appoint a company secretary responsible for maintaining all statutory information about the company.
A Specific Location
The Registered Office This serves as the company’s legal address, where various entities can send documents and assume they have reached the company directors. Information about members and officers is also available for public scrutiny at this location.
Clear Objectives
The Memorandum and Articles of Association The company’s nature of business and other essential details must be precisely outlined in the Memorandum and Articles of Association.
Filing your Company with local UK Registrar
Companies House
TBA & Associates will oversee the company registration process, which includes obtaining the necessary registration, adding your company to the Company Register, and furnishing you with a Certificate of Incorporation. This certificate, or a copy of it, must be prominently displayed at your Registered Office and will also be required by the bank.
You are now officially a Member or Director, or possibly both, of your Guarantee Company, allowing you to commence trading under this company name.
Subsequent to the registration, you will be required to fulfill several additional obligations.
Company Seal
It is advisable to acquire a Company Seal for the purpose of sealing specific documents.
Statutory Books
The company must maintain Statutory Books for the Register of Members, and later, the Minutes of Annual and Extraordinary General Meetings, among other records.
PAYE Registration
The Inland Revenue will contact you to register for PAYE purposes. This is essential even if you do not initially employ anyone, as Directors are considered employees.
VAT Registration
You must register your company for VAT unless your turnover falls below the minimum threshold. TBA INCORPORATORS or your accountant can assist with this process.
Business Stationery
You can now produce your business stationery, ensuring that it displays the Company Name, Registered Number, and Registered Office Address. Invoices and statements should also include your VAT Registration Number.
Accounting Date
The Company Secretary or your accountant will notify Companies House of the Accounting Date, marking the end of the Company’s first Financial Year.
As your Company becomes fully established, several statutory requirements must be met on an ongoing or annual basis, with the Company Secretary overseeing their fulfillment.
Regular & Annual Requirements
Change of Company Details
Notify Companies House of any changes related to Company ownership, Officers, or Registered Office address.
Registers
Ensure the Register of Members and Register of Directors is kept current at the Registered Office.
Company Meetings
Maintain Minutes of Annual (and Extraordinary) General Meetings in the Statutory Books.
Accounts – Bookkeeping
Keep updated financial records that accurately reflect the Company’s financial position.
Annual Accounts
Prepare and submit Annual Audit and Accounts to Companies House and the Inland Revenue. These accounts must be signed by a Director and the Company’s Auditor, with a copy provided to Companies House within 10 months of the end of the Financial Year to avoid late filing penalties.
Annual Return
Distinct from Annual Accounts, the Annual Return confirms the current details of the Company, requiring updating and returning to Companies House with the applicable fee.
Forming a Company Limited by Guarantee in the UK
Most companies are formed or acquired through specialized service providers such as TBA & Associates, accountants, or solicitors, who will manage all the necessary intricate details.
Engaging professionals offers the advantage of expert guidance on Company names, comprehensive Company searches, proper completion of forms, and the provision of essential items like Objects, Memorandum and Articles, Company Seals, Nameplates, Statutory Declarations, and more. However, it is important to note that the range of services can vary, and it is prudent not to compromise quality for a minor cost difference, as making changes later can prove costly.
Tailor-Made Companies
Tailor-Made Companies are custom-built to match the specific requirements of the client and can be registered promptly. The benefit is that you can select the desired Name and define Objects that align with your Company’s objectives. Guarantee Companies must be founded with Members and Directors identified from the outset.
‘Company Kit’
TBA & Associates offers a comprehensive ‘Company Kit’ that includes everything needed both before and after Company Registration, ensuring a smooth and efficient setup. The kit comprises:
Certificate of Incorporation
Six sets of Memorandum and Articles of Association
Statutory Books
Registered Office
Company Seal and Press
Resignation of First Officers
Guidance regarding the first meeting of Directors
TBA & Associates Range of Services
As a leading Company formation agent, TBA & Associates provides a broad spectrum of services.
UK Company Limited by Guarantee
Company Formation
This includes a free Company Name Search, handling all Registration requirements, and supplying a Company Kit for a seamless start to your Company’s operations.
Registered Office Address Facilities
TBA & Associates offers Registered Office facilities and, if required, can provide a Company Secretary.
Company Secretary Service
Recognizing the critical role of a Company Secretary, TBA & Associates can provide an efficient, professional Company Secretary service and communicate any changes in Company details to Companies House.
VAT Registration
TBA & Associates can also assist with VAT Registration.
Company Seal
Our services extend to providing statutory Company Seals, ensuring all details are addressed for new Companies.
Guarantee Companies
FAQ – Frequently Asked Questions
What sets a Company Limited by Guarantee apart from a Limited Company?
A Company Limited by Guarantee operates differently from a Limited Company in several key aspects. In a Company Limited by Guarantee, there are no shareholders who receive a share of the profits. Instead, individuals referred to as ‘The Guarantors’ commit to providing a specific amount to creditors in the event of the company’s failure.
How is the guarantee amount determined for each member?
The determination of the guarantee amount rests with the individuals involved. You have the flexibility to set the guarantee amount as per your preferences. An Unlimited Guarantee implies that members are personally liable for all company obligations. However, in practice, many members opt to provide a nominal guarantee, often as low as £1, limiting their liability to this nominal sum.
What are the typical purposes of Companies Limited by Guarantee?
Guarantee companies typically do not function as conventional commercial trading entities. Instead, they serve various other purposes, which may include:
- Charities: Many Guarantee companies are established to operate as charities, allowing them to raise funds from the public to support charitable endeavors.
- Members Clubs: These companies can serve as associations or clubs, uniting like-minded individuals with shared interests or goals.
- Associations: Guarantee companies can facilitate the administration of associations, bringing individuals together for common objectives.
- Communal Property Owners: In cases like the management of a block of flats, each property owner within the block may become a member of a Guarantee company.
How are profits managed in Companies Limited by Guarantee without the issuance of shares?
Even in the absence of traditional shares, Guarantee companies have Directors who oversee company affairs. These Directors are authorized to receive various forms of compensation, such as expenses, salaries, bonuses, and other remuneration, in line with decisions made by the company itself. This allows for the distribution of profits among the members in a manner aligned with the company’s objectives.
Is it possible for a Company Limited by Guarantee to acquire charitable status?
Certainly, a Company Limited by Guarantee can obtain charitable status. This status enables the company to solicit funds from the public, which are then directed toward charitable causes and activities. Many Guarantee companies opt for charitable status to advance their philanthropic pursuits.
Can a Company Limited by Guarantee raise funds?
Yes, a Company Limited by Guarantee can raise funds through various means. For example, a group of individuals, potentially as few as 50, may contribute financial resources to the company. These funds can then be employed to acquire a property or premises for running a “club” or “association” established for specific purposes.
Are members allowed to provide different guarantee amounts?
In general practice, it is recommended that all members of a Company Limited by Guarantee provide the same guarantee amount. This uniformity simplifies the company’s operations and administration. It is possible, however, that in some cases, original guarantors may choose to have different guarantee amounts. These decisions are often determined by the founding members or the company’s governing body.
Is providing a guarantee mandatory for all members?
No, it is not obligatory for all members of a Company Limited by Guarantee to give a guarantee. When an association is initially formed, such as one with four original guarantors, it is at the discretion of these founding members to decide whether new members should become guarantor members or not. Consequently, an association with a substantial membership, perhaps in the thousands, may only have a select few acting as actual guarantors, while others maintain regular membership without the guarantor designation.
How are Directors appointed within a Company Limited by Guarantee?
Directors of a Company Limited by Guarantee can be appointed through a vote by the company’s members. In newly established companies, the initial members may decide to take on the roles of the first Directors. The process of Director appointment and the specific criteria may vary depending on the company’s internal governance structure and its founding members’ decisions.
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Disclaimer: While TBA & Associates strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact TBA Customer Services for advice on your specific cases.