Here we discuss what the meaning of a company limited by guarantee is and what type of businesses operate in this structure.
A company limited by guarantee is a limited company as any other but the fundamental difference is it has no share capital. The company’s members are guarantors rather than shareholders. This type of entity is often used by charities, but not all companies limited by guarantee are charitable in nature. Other common uses for this type of company are membership organisations and clubs, including sports associations and property management companies.
It is less likely to be used by a normal trading business, as profits cannot be distributed to members by way of a dividend – there are no shares and so can be no dividend. The same rules and regulations apply to companies limited by guarantee as to companies with a share capital. This means that the company will have to file accounts at Companies House within the usual deadline, file annual returns, keep proper accounting records, appoint directors and file returns with HMRC.
Company’s registered with the Charity Commission are unlikely to need to submit a CT600 to HMRC and there will be no corporation tax to pay. The status of being limited by guarantee does not, of itself, allow a company to escape the liability to corporation tax.
What’s the difference?
The main differences between a company limited by guarantee and one limited by shares is summarised in the table below.
|Company limited by shares||Company limited by guarantee|
|Liability||limited to the amount unpaid on shares||limited to the amount that they guaranteed (often £1)|
|Balance sheet||Constitutes share capital||No share capital|
|Wordings||Usually called ‘shareholders funds’||Should be called ‘reserves’|
|Remuneration||Can be paid salary and dividends||Can only be remunerated via salary, not dividends|
|Motive||Often to make conduct a trade and make a profit||Usually members involved due to their commitment to the company’s objectives, rather than to benefit financially|