What is a company limited by guarantee?

A company limited by guarantee, often known as a guarantee company, is one in which the memorandum caps the members’ liability and they agree to pay a small sum in the event that the business is wound up. A guarantee corporation is held by members known as guarantors, as opposed to the idea of shareholders owning shares and the company.

Change of Membership Status

The Articles of Association of a corporation limited by guarantee govern the transfer of memberships. The requirements, rights, and responsibilities associated with becoming a member of the company should ideally be outlined in the Articles of Association. The transferability of Company memberships would also need to be specified in the articles. If there are any restrictions on membership transfers in the articles, any transfer of membership must meet the standards listed. As a result, the company’s articles need to be carefully read.

Section 29 of the Companies Act, 2013 states that the Articles of Association of companies not limited by shares shall be in one of the forms shown in Tables C, D, and E in Schedule I, as may be appropriate, or in a manner as nearly as possible to that form. This does not, however, preclude such corporations from inserting any additional issues in their articles, provided that they do not conflict with the requirements found in any of the company’s adopted Tables C, D, or E.

Which are the types of company limited by guarantee example?

There are two types of company limited by guarantee under companies act 2013.

1. Limited liability company with share capital

The company’s founding members will provide a portion of the startup capital or working cash since grants, subscriptions, fees, endowments, or any other source cannot provide this money. However, after the business is up and running, regular operating revenues can be obtained through fees, charges, and subscriptions for the services provided. Shareholding determines voting power in a guarantee company with share capital.

2. Limited company by guarantee without equity in shares

These guarantee firms don’t get their start-up money or operating cash from their members. Rather, the organization obtains operating capital from several sources such as grants, endowments, subscriptions, and fees, among others. Take non-profit organizations or philanthropic establishments that were founded with public contributions or government funds. The guarantee determines voting power in a guarantee corporation without share capital.

Features & Advantages of Company Limited by Guarantee India

1. A company limited by guarantee and its owner/guarantors are two different legal entities. The company is accountable for its own debts.
2. Guarantees are not held personally liable for any of the debts of the company. Their private belongings are so safeguarded. In the unlikely event that the business becomes insolvent, they are simply obligated to pay the agreed-upon sum according to their guarantee.
3. A guarantor might be any individual or corporate entity. 
4. To begin started, it needs a single director and a single guarantor. One individual may take on both roles, making it simple for anyone to launch a business. Nonetheless, more than one director or guarantor is permitted!
5. Generally, companies limited by guarantee are formed with non-profit objectives in mind. Any earnings made by the business are put back into supporting its charitable endeavors.
6. The suffix “limited” must appear in the name of a company limited by guarantee. Investors and clients are given a certain level of trust by this word.

FAQs

Who is the shareholder of public company limited by guarantee?

Public companies limited by guarantee (CLG) are a type of legal form that social enterprises, charities, and non-profits frequently use.

What is the liability of members if company is limited by guarantee?

Companies limited by guarantee are defined as “a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its winding up” in Section 2(21) of the Companies Act of 2013.

What is a company limited by guarantee example in India?

Example: PCB Technologies Advanced Private Limited

A company limited by guarantee is the most popular legal form for clubs, philanthropic societies, non-profit organizations, and other groupings.