Commonly used for non-profit organisations and associations.
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Companies limited by guarantee are widely used for charities, community projects, clubs, societies and other similar bodies. Most guarantee companies are not-for-profit companies - that is, they do not distribute their profits to their members but either retain them within the company or use them for some other purpose.
The main reason for a charity, community project, etc. to be a company limited by guarantee is to protect the people running the company from personal liability for the company's debts, just as a business may be set up as a company limited by shares for the same reason. Sometimes funding bodies, such as local authorities, insist on an organisation being registered as a company limited by guarantee.
If a charity, community project, club, etc. is not registered as a limited company, then the people running it (typically the management committee or a similar body) can be made personally liable for its unpaid debts. If the income does not meet these outgoings, the organisation may become insolvent, and the people running it (though not usually the members at large who are not on the committee) can be made personally liable for the shortfall.
In a company limited by guarantee, the liability is limited to the amount of the guarantee set out in the company's articles, which is typically just £1.
In a company limited by guarantee, there are no shareholders, but the company must have one or more members. Subject to any special provisions in the company's articles, the members will be entitled to attend general meetings and vote, and in most companies that means they can appoint and remove the directors, and have ultimate control over the company.
A company limited by guarantee, as a private company, must have at least one director. Most guarantee companies have several. They are responsible for the day to day running of the company
As there are no shareholders, it is not possible to own a company limited by guarantee in the way that a company with a share capital is owned by its shareholders. The members of the guarantee company control it, in the same way as shareholders control a share company, but they do not have any shares or other security in the company that they can sell to another.
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To register a company limited by shares, you will need a suitable company name, at least one director and one shareholder (both of whom can be the same person) and an address for your company. You must also decide how many shares you wish to issue.
A Limited company must file annual tax returns ('corporation' tax returns) with HM Revenue and Customs.It must also file an annual return to Companies House, which is a snapshot of general information about the company.