Advantages And Disadvantages Of A Private Company Limited By Guarantee

A private company limited by guarantee is a type of cooperation normally set up by non-profit making organisations that require a legal personality.

A company limited by guarantee has certain similarities with a private company limited by shares. For example:

  • both are registered at Companies House
  • both must register their accounts and annual returns each year
  • both has directors.

However the major difference between the two is that a company limited by guarantee does not have a share capital or any shareholders, instead it has members who control it.

The company must have at least one member. The members are entitled to attend general company meetings and vote. They usually have the power to appoint or remove directors.

Just like in a company limited by shares where there are the distribution ratio of shares affects the voting rights in shareholder meetings, a company limited by guarantee can have different levels of membership that affects the members’ voting rights. A company limited by guarantee may have non-voting members or members who have restricted rights in some other way. For example, if its a sports club, these may be non premium members who pay a lower subscription.

The company members do not usually benefit from the profits made from the company. Instead, the profits are usually channeled towards the company’s operations or goals. Each member of the company has a mandate to contribute an amount specified in the articles in the event of insolvency of the company.

Types of companies limited by guarantee

Here are some of the examples of types of companies limited by guarantee:

  • clubs and membership organisations
  • students’ unions
  • residential property management companies, such as those used to manage blocks of flats in which the flats are owned directly by the company and the tenants are members of the company. When a tenant leaves, he or she simply resigns their membership.
  • sports associations
  • co-operatives
  • non-governmental organisations
  • charities organisations
  • political parties.

Advantages of a private company limited by guarantee

  • Some funding organisations insists that an organisation be registered as a company limited by guarantees before it can receive their funding.
  • Members of the company have no liability for the company’s debts, unless it involves fraud.
  • The limited company status gives some credibility to an organisation.
  • A private company limited by guarantee has guarantors instead of shareholders, which makes it a suitable choice for voluntary organisations.
  • The company can enter into commercial contracts and employ staff.

Disadvantages of a private company limited by guarantee

  • It is required to notify Companies House in there is a change in directors.
  • Annual accounts and annual returns have to be filed and if its a charity organisation, the company must also file an annual return with OSCR.

Sydney Chako

Mathematics, Chemistry and Physics teacher at Sytech Learning Academy. From Junior Secondary School to Tertiary Level Engineering Mathematics and Engineering Science.

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