Businesses that desire to be non-profit organisations (NPO) but still need a corporate status will generally be setup as a private limited company by guarantee.
When you form a new company it is important that you choose the right company type. The majority of companies whether they are setup for charitable or commercial reasons will be limited by guarantee or by shares. A private limited company that is limited by guarantee will have no shares as there are no investors.
Rather, the company will have members that will be bound by a guarantee that will be thorough in the company’s articles of association. The guarantee will necessitate the members to pay the debt of the company, which will be a fixed amount usually set at £1. This type of company structure is appropriate for charities, trade associations, education institutions, societies and clubs.
A private limited company by guarantee has guarantors instead of investors. The members in control have limited liability that is restricted to the amount they have decided to contribute in case the company folds up. For non-profit and charity organisations, members do not take any profit or shares. Any proceeds made, will be diverted into the organisation.
When to make use of a company limited by guarantee?
Should you be setting up a charity or community that will be an NPO, then this is the company structure that is suitable. It will help safeguard all personnel in charge of administrating the company from having any personal liability for the debt of the company. A few charitable organisations can be big enterprises and it will not be that easy to close off liabilities like leasehold for the office space, equipment, employment and financial costs.
The organisation in charge of the administration of the company could be accountable if for any reason the company becomes bankrupt. This is bound to happen if financial support was abruptly withdrawn. So by making sure that the company is limited by guarantee, every member as well as those managing the company will be safe guarded. If an organisation is being funded by a local authority then in most instances, they will persist that the organisation be enlisted as a company limited by guarantee.
Enlisting a company limited by guarantee?
Registering a company limited by guarantee is done just like a company that is limited by shares. The online company formation process is precisely the same with incorporation taking only 3 hours when completed online with a formation agent like Your Company Formations Ltd.
The following information will be needed when establishing a company limited by guarantee
- Minimum of one company director
- At least a guarantor
- Company must have an enlisted office address in the country where the company is established
- Details of the objectives of the company, members with limited guarantee and details of any non-profit distribution article
- Director’s personal details
- Guarantors’ detail
- Information explaining how the company must be managed plus the rights of the guarantors and directors
Based on how you intend to run the company, you may have at least one person operating as a director and guarantor. For businesses planning to form as a charity, they need to register with the Charity Commission should it be Wales or England. In the case of registering a charity in Scotland then you will need to contact the Office of the Scottish Charity Regulator (OSCR) and also register your business with Companies House.