Madeleine’s Fund: Leaving No Stone Unturned Ltd is a “Private Limited Company”. We have all heard this term at some point in time. Essentially, the Fund is a private company and the people who run it/own it, are protected by limited financial liability. Unlike the most common type of limited company, the Fund is a special type of limited company and is a “Company Limited by Guarantee”. In the case of the Madeleine Fund, this means there are no shareholders. The board of directors (or members) act like a conventional board of directors but they have special rules which are quite different to the rules imposed on a regular private limited company. The explanations below were taken from a company that sells off the shelf companies in the United Kingdom (http://www.ukincorp.co.uk/).
ADVANTAGES & DISADVANTAGES OF A COMPANY LIMITED BY GUARANTEE. INCORPORATE NON-PROFIT COMPANY IN THE UNITED KINGDOM
A company limited by guarantee is normally registered for non-profit making functions. The company has no share capital. A company limited by guarantee has members, rather than shareholders, the members of the company guarantee/undertake to contribute a predetermined sum to the liabilities of the company which becomes due in the event of the company being wound up. It cannot distribute its profits to its members, and is therefore eligible to apply for charitable status if necessary. Guarantee companies are useful for non-profit organisations that require corporate status. This means that its profits are not distributed to its members but are retained to be used for the purposes of the guarantee company.
Of course this does not mean that the guarantee company cannot make a profit, as indeed it is almost paramount that it can and does so. These companies are normally used for non profit making or charitable causes, the memorandum and articles of association state the general objects of the company, prohibit the payment of dividends to members and if the company is wound up all assets must be transferred to another organisation with similar objects or to a charity.
In British company law, a company limited by guarantee is an alternative type of corporation used primarily for non-profit organisations that require legal personality. A guarantee company does not have a share capital, but has members who are guarantors instead of shareholders. The guarantors give an undertaking to contribute a nominal amount (typically £1.00) towards the winding up of the company in the event of a shortfall upon cessation of business.
It cannot distribute its profits to its members, and is therefore eligible to apply for charitable status if necessary.
Common uses of guarantee companies include clubs, membership organisations (including students’ unions, sports associations, workers’ co-operatives, other social enterprises, non-governmental organizations and charities.
Because the company form features a participating membership, it is suitable for representative organisations such as tenants’ associations, pressure groups and federations, where it is necessary for the governing body to be accountable to the people the organisation claims to represent. In such a company the directors will normally be elected by and from the membership.
However, it is possible to design a company where the only members are also the directors, who are thus only constitutionally accountable to one another. Such a structure may be preferred where greater stability is required without the potential for power blocs to develop within a larger membership. In this case, how the directors get to be appointed will be laid down in the articles. In some cases, directors are effectively self-perpetuating, with future directors appointed by the present ones.
In other cases, the articles will specify organisations or agencies which are entitled to nominate one or more directors, or detail some other procedure by which directors are identified ands appointed.
When incorporating multi-stakeholder organisations, this form is sometimes preferred over the industrial and provident society because company law allows multiple classes of member with separate voting constituencies.
A company limited by guarantee is a legal entity which exists in its own right in the eyes of the law, separate and distinct from the individuals who are involved in it. A company is like a person in law. It can sue, or to be sued, in its own name; it can enter into contracts, and can own property all in its own name. The company limited by guarantee and having shares can be structured as a private family foundation.
These type of companies (private companies limited by guarantee) are used by charities and for not for profit promotion of education, commerce, art science and sport, or for promoting the interests of a particular section of society, or for a particular policy.
Management / Governance Structure
Essentially two-tier, with a board of directors accountable to a wider membership (sometimes referred to as a “participating membership”). Members will typically hold voting rights at general meetings and will elect all or some of the directors.
Further embellishments may be added to this basic structure, e.g. an executive committee (smaller than the governing body, perhaps made up of honorary officers and senior staff), or a members’ council, which may meet more frequently than the full membership and supervise the work of the directors. However, it is possible (and quite common) to create a single-tier structure by simply stating that only directors may be members and vice-versa. Thus although these two roles will still exist within the company, the same people will perform both.
All companies are required to have a secretary, usually described as the senior administrator. This person may also be a member or director, but need not be. In funded community and voluntary organisations, the post of secretary will often form part of the job description of a member of staff.
A company limited by guarantee is a registered company having the liability of its members limited by the memorandum to such amounts as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up. Such companies are widely used for schools, professional and trade associations, clubs and management companies for blocks of flats (check our special property management package.)
Guarantee Company: its Differences
The main differences between a guarantee company and a company with shares are:
- Its members do not receive share certificates and whilst they control the guarantee company, through decisions taken by them at General Meetings, they do each not “own” a proportionate part of the guarantee company.
- Its members cannot receive any dividend, profit or other income from the guarantee company, nor can they receive a share of its assets if it comes to an end.
- Its members enjoy limited liability, but usually have to pay an annual subscription (at a rate set annually by themselves at General Meeting) and, if the guarantee company is forced to come to an end through a liquidation, they are obliged to pay a final sum of £1.00 each to the Liquidator.
- The members (in most cases) elect the Board of Directors (usually called Trustees or Governors to avoid connotations of salaries and bonuses) which is responsible for setting and overseeing the policy of the guarantee company.
- The Directors also enjoy limited liability, provided that they have not acted negligently, or fraudulently, or have not permitted the guarantee company to continue trading when it was insolvent (this is known as “wrongful trading”).
Guarantee Company: Advantages
- Members’ liability is restricted (usually to £1.00 each);
- The guarantee company can hold property and borrow money in its own name;
- The guarantee company is subject to the democratic control of members – both in relation to fundamental decisions (e.g. a change in its constitution) and in relation to election/re-election of the Board;
- It is relatively easy to set up a wholly-owned subsidiary company, with a share capital owned by the guarantee company, which is particularly useful where the guarantee company is a charity and the subsidiary company is to be used for non-charitable trading (often called “a trading subsidiary”).