The directors who aim to register a limited company, tend to have two main options open to them. The first option is to register a company limited by guarantee. The second option is a company that is limited by the shares. It has been observed in the UK that mostly the incorporated businesses opt for the second option and register the company that is limited by shares. This is because a company limited by shares is aligned better with a company that is set up to make a profit for the owners.
However, in this case, non-profit organisations are more inclined towards the LBG structure (Limited by Guarantee). They opt for this structure typically. This is because of the requirement of legal identity and standing. Political parties, student unions, community projects, private member clubs, sports organisations, and charities are a few examples of companies that tend to incorporate this. Further in this blog, we will cover the explanation of the structure of a company limited by guarantee and its trading benefits.
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Structure of A Company Limited By Guarantee
Several ways allow you to observe that a company limited by shares tends to function just in a similar way as the limited company by guarantee does. They are known to be the same in terms of rules regulations, administrative requirements, and other such responsibilities. Both have to follow the standards of companies’ acts. Other basic requirements that are given in the following are also the same whether it is a company limited by shares or a company limited by guarantee.
- Confirmation statements
- Submission of annual accounts
- The statutory filing obligations
- A registered address of your office in the country of incorporation
Furthermore, the main difference is that LBG does not have the case of shareholders like the company limited by shares. There is no share capital invested in LBG as well. Instead of such details this LGB is set up and controlled by individuals who are in the role of guarantors. There is a requirement for a director as well. The director also plays the role of guarantor. In the case of charitable organisations, there is a requirement for two directors.
Trading Advantages of A Company Limited By Guarantee
Generally, the trading benefits in the case of a company limited by guarantee are just the same as any other limited company. The major and prominent benefit in the case of LBG is the factor that involves protection against the expected financial losses that one might struggle with in the future. The community project or the charitable endeavours are not considered free from financial responsibilities in any case.
Several such companies are known to have financial agreements about vehicles and other types of equipment, lease commercial premises, and have employees as well. Moreover, in a case where the business is going through distress financially, the members associated with the company are held liable for the basic standards. This is only when the company is not in the state of incorporating the limited status.
However, in the case of an LBG structure, it is agreed among the guarantors to make contributions of a set amount of money. This is decided by the set rules in the company’s articles of association. This is considered when a company becomes insolvent. Unfortunately has to subsequently enter liquidation. The personal exposure of the members is only limited to the amount of guarantee. This handles the incidents of negligence and fraud well. The amount of money in such cases is typically very nominal as well.
The Profits of The Company – What Happens to Them?
In the majority of LBG cases that have been observed, it is important to retain the profits of the company. This is because they are reinvested to develop further or to ensure the enhancement of business activities, objectives, and other goals. The profits that the company makes are then distributed among the members. This is important to know here that in such scenarios the company can not qualify for the status of being charitable.
There is no such thing that can stop the process of extracting profits from the company that is LBG. If the aim is otherwise, it is suggested to the directors to set up the structure of a company limited by shares instead of LBG.
If the company aims to raise funds but there are no shares to issue because all the LBG structures do not have the capital share. There is no possibility of issuing the shares to any individual who is seeking an investment opportunity. Otherwise, there are plenty of options open for such opportunities with little limitation on the ways of sourcing finance. The option of borrowing money is open for an LBG just like a company limited by shares.
The Bottom Line
Now that you have gathered a fair amount of information about Company Limited By Guarantee, we can bring the discussion toward wrapping up. We can sum up by saying that a company that is set up for charitable purposes can be incorporated as an LBG. This is important because this is the only way you will get the registered status of a charitable organisation. There are companies that tend to choose the structure of charitable organisations and have hidden intentions of making wealth. This involves the directors as well as the individual members. We hope by reading the blog, you will have developed a better understanding to choose the right structure for your company.
We recommend finding professional help to further learn about how can you set up your company limited by guarantee. Talk to our guys and get your queries answered quickly.
Disclaimer: The general information provided in this blog about Company Limited By Guarantee includes its text and graphics. It does not intend to disregard any of the professional advice.