Company limited by guarantee
Encyclopedia
In British
and Irish
company law, a private company limited by guarantee is an alternative type of corporation
used primarily for non-profit organisations that require legal personality. A guarantee company does not usually have a share capital
or shareholder
s, but instead has members who act as guarantors. The guarantors give an undertaking to contribute a nominal amount (typically very small) in the event of the winding up of the company. It is often believed that it cannot distribute its profit
s to its members but (depending on the provisions of the articles) this is not actually true. However a company limited by guarantee that distributes its profits to members would not be eligible for charitable status.
Until 1981, it was possible in the United Kingdom to form a guarantee company with share capital .
Like a private company limited by shares, a company limited by guarantee must include the suffix "Limited" in its name, except in circumstances specifically excluded by law. One condition of this exclusion is that the company does not distribute profits.
Common uses of guarantee companies include club
s, membership organisations, including students' unions, residential property management companies, sports associations (such as the PGA European Tour
), workers' co-operatives, other social enterprise
s, non-governmental organization
s (NGOs) and charities (such as Oxfam
). The railway infrastructure provider Network Rail
, domain name registry Nominet UK
, England and Wales Cricket Board
and IXPs LINX (London Internet Exchange
), and LONAP
(London Access Point) are also companies limited by guarantee. Australia
also has companies limited by guarantee, Cricket Australia
being one example.
When incorporating multi-stakeholder organisations, this form is sometimes preferred over the industrial and provident society
because company law allows multiple classes of member with separate voting constituencies.
Under section 5 of the Companies Act 2006
, new companies cannot be formed as a company limited by guarantee with a share capital; which makes this type of company unsuitable for commercial enterprises.
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
and Irish
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
company law, a private company limited by guarantee is an alternative type of corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
used primarily for non-profit organisations that require legal personality. A guarantee company does not usually have a share capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
or shareholder
Shareholder
A shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....
s, but instead has members who act as guarantors. The guarantors give an undertaking to contribute a nominal amount (typically very small) in the event of the winding up of the company. It is often believed that it cannot distribute its profit
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
s to its members but (depending on the provisions of the articles) this is not actually true. However a company limited by guarantee that distributes its profits to members would not be eligible for charitable status.
Until 1981, it was possible in the United Kingdom to form a guarantee company with share capital .
Like a private company limited by shares, a company limited by guarantee must include the suffix "Limited" in its name, except in circumstances specifically excluded by law. One condition of this exclusion is that the company does not distribute profits.
Common uses of guarantee companies include club
Club
A club is an association of two or more people united by a common interest or goal. A service club, for example, exists for voluntary or charitable activities; there are clubs devoted to hobbies and sports, social activities clubs, political and religious clubs, and so forth.- History...
s, membership organisations, including students' unions, residential property management companies, sports associations (such as the PGA European Tour
PGA European Tour
The PGA European Tour is an organization which operates the three leading men's professional golf tours in Europe: the elite European Tour, the European Seniors Tour and the developmental Challenge Tour. Its headquarters are at Wentworth Club in Virginia Water, Surrey, England...
), workers' co-operatives, other social enterprise
Social enterprise
A social enterprise is an organization that applies business strategies to achieving philanthropic goals. Social enterprises can be structured as a for-profit or non-profit....
s, non-governmental organization
Non-governmental organization
A non-governmental organization is a legally constituted organization created by natural or legal persons that operates independently from any government. The term originated from the United Nations , and is normally used to refer to organizations that do not form part of the government and are...
s (NGOs) and charities (such as Oxfam
Oxfam
Oxfam is an international confederation of 15 organizations working in 98 countries worldwide to find lasting solutions to poverty and related injustice around the world. In all Oxfam’s actions, the ultimate goal is to enable people to exercise their rights and manage their own lives...
). The railway infrastructure provider Network Rail
Network Rail
Network Rail is the government-created owner and operator of most of the rail infrastructure in Great Britain .; it is not responsible for railway infrastructure in Northern Ireland...
, domain name registry Nominet UK
Nominet UK
Nominet UK is the .uk domain name registry in the United Kingdom, which was founded by Dr Willie Black and five others on 14 May 1996 when its predecessor, the 'Naming Committee' was unable to deal with the volume of registrations then being sought under the .uk domain. Nominet is a non-profit...
, England and Wales Cricket Board
England and Wales Cricket Board
The England and Wales Cricket Board is the governing body of cricket in England and Wales. It was created on 1 January 1997 combining the roles of the Test and County Cricket Board, the National Cricket Association and the Cricket Council...
and IXPs LINX (London Internet Exchange
London Internet Exchange
The London Internet Exchange is an Internet exchange point situated in London. It was founded in 1994 by a group of Internet service providers. LINX is a founder member of , a Europe-wide alliance of Internet Exchanges...
), and LONAP
LONAP
London Network Access Point is a London-based Internet exchange point founded in 1997 as a membership organisation and currently has almost 100 members, making it the 2nd largest IXP in the UK and around the 15th largest IXP in the World by membership...
(London Access Point) are also companies limited by guarantee. Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
also has companies limited by guarantee, Cricket Australia
Cricket Australia
Cricket Australia, formerly known as the Australian Cricket Board, is the governing body for professional and amateur cricket in Australia. It was originally formed in 1905 as the Australian Board of Control for International Cricket...
being one example.
When incorporating multi-stakeholder organisations, this form is sometimes preferred over the industrial and provident society
Industrial and Provident Society
An industrial and provident society is a legal entity for a trading business or voluntary organisation in the United Kingdom, the Republic of Ireland, and New Zealand...
because company law allows multiple classes of member with separate voting constituencies.
Under section 5 of the Companies Act 2006
Companies Act 2006
The Companies Act 2006 is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law. It had the distinction of being the longest in British Parliamentary history: with 1,300 sections and covering nearly 700 pages, and containing 16 schedules but it has since...
, new companies cannot be formed as a company limited by guarantee with a share capital; which makes this type of company unsuitable for commercial enterprises.
See also
- Community interest companyCommunity interest companyA community interest company is a new type of company introduced by the United Kingdom government in 2005 under the Companies Act 2004, designed for social enterprises that want to use their profits and assets for the public good...
- Company
- Private limited company by shares
- :Category:Private companies limited by guarantee of the United Kingdom
External links
- Companies Act 2006, Office of Public Sector InformationOffice of Public Sector InformationThe Office of Public Sector Information is the body responsible for the operation of Her Majesty's Stationery Office and of other public information services of the United Kingdom...
.