Companies limited by guarantees is an alternative type of business structure that is used by non-profit organizations. They don't have to share capital and shareholders. Rather, they are held by one or more 'guarantees' each of whom guarantees a fixed amount of money to the business in the event of insolvency.
From the business, the profits are not taken by the guarantors. All excess revenue is returned to the organization to meet its non-profit goals.
A limited by guarantee company features:
- Ideal for non-profit organizations such as charities, sports associations, social clubs, cooperatives, and organizations of membership. Can also be used by companies, but it is better to have a limited by shares structure.
- It should have at least one director (i.e. manager)
- It should have at least one guarantor (i.e. owner)
- The guarantor and the director both are the same person.
- There is no limit to appointing directors and guarantors until and unless the limit of appointing is made fixed by the Articles of Association.
- There are no shares or shareholders in this type of company structure.
- The guaranteed fixed amount of money will be paid by the Owner to the company if the company cannot pay its all debt amount.
- Guarantors are protected by limited liability. The total amount of money that they guarantee should always be equal to their limited liability.
- It must have a registered office address in the country of incorporation.