What's the financial position of a company limited by guarantee?

An LBG has no share capital, and it cannot raise money by selling equity subscribers' shares. It is appropriate for non-profit projects. It can pursue its goal by raising funds through grants or borrowing, for example, the issue of debentures.

The Companies Act does not expressly prohibit a limited company from distributing surplus profits to shareholders by guarantee, and there are a limited number of companies doing so. In the majority of cases, the corporation retains some income to promote the organisation's objectives.

In addition, the articles of association of the company will always prohibit the distribution of profits and however, if any member receives a share of income from a corporation founded for charitable purposes, the corporation will lose its right to charitable status.

An LBG must file accounts and tax returns under the same time limits as a company limited by share. The key variations:

  • Share capital on the balance sheet does not turn up.
  • A common language is used, along with a warning that the company is constrained by a guarantee. Instead 'Income' should be named 'Surplus' and 'Shareholders Funds' should be replaced with 'Reserves.'

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