Company Limited by Guarantee is an Alternative Type of Incorporation

A company limited by guarantee is an alternative type of incorporation: the company limited by guarantee is a special type of company available to non-profit making organisations and charities. Instead of buying shares, anyone who wants to be a member signs a form agreeing to pay a sum of money (for example £1.00, £5.00, £10.00) if the guarantee company goes into insolvent liquidation (is bankrupt and has to be dissolved).

This form is called the 'guarantee' and because members' liability is limited to the sum they each guarantee, then the non-for-profit company is said to be 'limited by guarantee'. The non-profit company is legally binding while the guarantor remains a member and for one year after he or she ceases to be a member.

Unlike unincorporated associations and trusts, the company has a separate legal existence from its members. This means that, in its own right, it can employ people, own property, enter into contracts and sue or be sued in the courts. The day-to-day business is run by the directors, who are also defined in law as charity trustees if it is a charitable company. The directors may call themselves a management committee, an executive committee, board of trustees or board of directors. Charitable companies are bound both by the Companies Acts and the Charities Act, so they must send their annual accounts and annual returns to Companies House and to the Charity Commission.

A management company by guarantee is a limited company formed for the purpose of management of a specific property that has been divided into separate areas. i.e flats. For example the leaseholders / tenants of the property would form a management by guarantee company to pool funds for the maintenance costs of the communal areas of the building or to pool costs for long term projects such as roof repairs. Or for example, the owners of the property may wish to set up a management by guarantee for managing the maintenance costs of the property on behalf of the tenants. Any monies leftover would go back into the company to cover any future maintenance costs.

The difference between the management company limited by shares and the management company limited by guarantee is that there are no shareholders. This means no one person can benefit from any profits or any monies left over after maintenance and overheads have been deducted. If any monies do remain they can be designated to a charity or charities agreed by the members or as the management company limited by guarantee is a not for profit organisation themselves they can channel the remaining monies back into the property or charity to help fund their aims and objectives listed in their memorandum and articles which usually covers the funding for maintenance. office.