Difference between company limited by shares and company limited by guarantee

Can a company limited by guarantee issue shares? What is limited company guarantee? And the company is treated as separate legal entity from its members. As far as legal definitions are concerned both the companies are one and the same.

There are no shares or shareholders. This type of company is owned by ‘ guarantors ’ (also referred to as ‘members’).

To become a guarantor , you must guarantee a fixed sum of money to the company. This is the extent of a guarantors personal liability to the business and it must be paid if the company becomes insolvent. Members of a company limited by guarantee , however, do not ‘own’ the company in the same way that the shareholders of a company limited by shares do. Despite this, when it comes to the day-to-day operations of running the company , the roles occupied by members and directors is very similar. Assuming that an average shareholder holds more than one share in a company , members in a business limited by guarantee do appear to have less risk attached to their positions.

We feel it is important to understand each structure as it has a drastic effect to the functioning of your company. Choosing the right company structure is crucial for your business. This article explains the key difference between a company limited by shares and a company limited by guarantee so you can make the right choice for your business.

Company Limited By Shares.

In a company limited by guarantee , there are no shares - hence there are no shareholders. If you want to run your business as a non-profit venture or charity and retain all of the profit in the business, a limited by guarantee company is normally the best option. Limited by shares companies are set up with share capital. The main diffrerence between a company limited by guarantee and. If you opt for a company limited by shares , the company will normally issue one share to each flat owner.

Being limited by guarantee means the management are protected from liability if the company goes bankrupt or gets into financial difficulty. Perhaps the most fundamental difference between the two types of limited companies is that those with shares generally exist for profit making purposes. Instea the “owners” of the company are called guarantors. Are guarantors financially liable to the company?

A company limited by guarantee has no share capital, hence there are no shareholders (unlike a private company limited by shares). They may also receive dividends. Each shareholder has as many votes as they have shares. Register as a CIC ‘ limited by guarantee ’ if your CIC looks more like a charity. The directors will also be called trustees and will each commit to a cash guarantee to be paid if the company were to fail.

The guarantee is normally set at just £each. If you are planning to register a new limited company , you must first decide whether it will be limited by shares or limited by guarantee. The vast majority of companies are set up as limited by shares.

This is an ideal legal structure if you want to keep business profits for yourself. Members, not shareholders – unlike a company limited by shares, this company does not have shareholders a company limited by guarantee has one or more members.

It is not possible to to convert the same corporate entity from one type of limited liability to the other. A limited company will be limited by shares or guarantee. It will pay corporation tax on all profits, have a registered UK address and bank account and can sell shares for profit and give investors a dividend. A guarantee company is very much the same as a limited by shares in that it must register its accounts and annual returns each year, it has directors who control the company etc. A major difference is that it does not have a share capital or any shareholders, but members who control it.

The law considers a company to have the same legal status as a person. This means that a charitable company , like an individual, can own land and enter into contracts it its own name. The company has no shareholders and does not distribute profit.

Its members’ liabilities are limited to a guaranteed sum – usually £1.