Non-profit organizations, such as sports clubs, workers’ cooperatives, and membership organizations, that want to benefit from having limited financial obligations, are the ones who create a company most often. In contrast to the more popular limited-by-shares structure, the company is owned by guarantors who promise to contribute a certain sum of money toward the business’s obligations. Furthermore, revenues won’t often be dispersed to the guarantors since they’ll be reinvested back into the organization to further its non-profit goals. The firm will lose its ability to seek charity status if any revenues are paid to the owners.
Benefits of companies limited by guarantee
A corporation limited by guarantee has its own legal identity and is liable for its obligations independent of its owners. The company’s guarantors’ own money is safeguarded. They are solely liable for the repayment of the company’s obligations up to the extent of their guarantees. Client and investor confidence is increased by the “Limited” designation. This kind of professional reputation is priceless and may aid a business in more successfully achieving its goals.
Establishing a company limited by guarantee
A corporation has the following characteristics:
- A minimum of two directors and one guarantor
- A physical address will be used as the registered office address
- Codes from the Standard Industrial Classification (SIC) should be provided. These codes describe the kind of trade activity the firm engages in
- It should be disclosed who the People with Significant Control (PSCs) are in the company
Regulatory documents
The Articles of Association, which define the company’s internal policies and procedures, serve as its constitution. The individual founding the corporation must decide whether they are adopting the model articles as written, the model articles with modified provisions, or completely customized articles. Members’ obligation is only for the amount of the guarantee they supplied, which is often a small sum (subject to circumstances where limited liability can be greater as a result of wrongdoing).
Incorporation
Companies House, the Registrar of Companies in the UK, is where all companies must register. The standards for charities governance, which are supervised and enforced by the Charities Commission and charity law in general, will also apply to the Company if it is also a registered charity, which is often the case with Companies Limited by Guarantee. Companies House must receive the following documents, all of which are open to the public:
- Information on the company’s planned primary business activity
- A statement of capital and first members
- The Memorandum of Association
- The Articles of Association (if amending or replacing model articles)
- Annual statutory financial statements
- Information on people with substantial control
- Annual confirmation statement including information on directors, members, registered office location and shared capital
- Statement of specifics for any charge placed against its assets
Governance
The board of directors is a company’s executive body, and one of its primary responsibilities is to decide how the business will be conducted on an everyday basis. The Companies Act of 2006 (CA 2006), which sits alongside fiduciary obligations outlined in case law, governs the statutory responsibilities of the board of directors. A director’s primary obligations include:
- Acting within his or her authority
- Promoting the company’s success for the benefit of all members
- Exercising independent judgment
- Exercising reasonable care, skill, and diligence
- Avoiding conflicts of interest
- Refusing to accept benefits from third parties
- Disclosing an interest in a proposed transaction or arrangement
The UK Corporate Governance Code should also be taken into consideration by directors.
Interests in ownership
Members don’t own any ownership stakes. It is often stipulated that any surplus assets in the case of the dissolution of a business limited by guarantee be allocated to another corporation with comparable objectives rather than to the members.
Taxes and expenses
The following taxes apply to a corporation limited by guarantee:
- Value Added Tax (VAT)
- The corporate tax rate is 19% for business earnings
- Stamp duty, if applicable
- PAYE (income tax and national insurance on employee salary
In addition to taxes, there is an annual filing charge of £40 or £13 with the confirmation statement (if filed by paper). Additionally, there are penalties/fines for submitting papers to Companies House beyond the deadline, and automatic fines are imposed when the mandatory annual accounts are not submitted on time:
- Up to one month: $150
- 1-3 months: £375
- 3-6 months: $700
- over six months: £1,500
You may also find these articles helpful
Guide on company registration in the United Kingdom
Breakdown of United Kingdom company registration fees and expenses
Limited Liability Partnership registration guide in the United Kingdom
