A Private Company Limited by Guarantee is a company that is usually incorporated by the non-profit organizations such as membership organizations, student’s unions, sports associations, clubs, worker’s co-operatives, non-governmental organizations (NGOs) and social enterprises. Such a company does not have a share capital or shareholders. However, they have members who are the guarantors. These guarantors agree to contribute a fixed amount of money towards the company’s debts. The profits of a Private Company Limited by Guarantee do not get distributed to the guarantors; it is reinvested with the purpose of promoting the non-profit motive of the company.

Company Formation

Even though the formation of a Private Company Limited by guarantee is an easy process, you must be aware of certain specific requirements and regulations associated with its formation. Some such significant points are as follows:

  • All Private Companies Limited by Guarantee should be mandatorily registered with the Registrar of Companies in the UK and the Companies House.
  • During the process of forming a Private Companies Limited by Guarantee, details of the registered office address have to be submitted. The official company address is displayed on public record.
  • During the company incorporation process, the completion of Articles of Association (AOA) and Memorandum of Association (MOA) is mandatory. These documents should also be admitted with the application. AOA lays out the rules and regulations that the company has to adhere to, and the MOA has the details of each guarantor and comprises of the agreement to incorporate the company and become members.
  • Every Private Company Limited by Guarantee must have at least one guarantor and one director. A single individual can, however, assume both these positions. The information about all directors and guarantors are available on public record.
  • Information about the People with Significant Control (PSCs) must be submitted. Generally, the guarantors and directors are the PSCs.
  • You need to submit Standard Industrial Codes. You can submit a maximum of four. These codes describe the exact nature of your company’s trading activities.
  • You need to submit Standard Industrial Codes. You can submit a maximum of four. These codes describe the exact nature of your company’s trading activities.

Advantages

Some of the most interesting advantages of a Private Company Limited by Guarantee are as follows:

  • A Private Company Limited by Guarantee is deemed as a separate legal entity; this means that it is separate from its guarantors and is responsible for its debts. The personal assets and the personal finances of the guarantors are protected because they are only liable to pay for company debts up to the number of their guarantees.
  • The Status of a limited company raises the confidence and trust of potential investors and clients. This can help a Private Company Limited by Guarantee achieve its goals more effectively.
  • A Private Company Limited by Guarantee is a more stable structure in comparison to a voluntary association because it is generally formed by funding bodies.

Disadvantages

  • The cost of setting up, compliance, accounting and administration of a Private Company Limited by Guarantee is high.
  • You can only incorporate a Private Company Limited by Guarantee for charitable and nonprofit purposes and not for making personal profits.
  • A Private Company Limited by guarantee cannot have a share capital. This limits its fundraising capacity.
  • Since there are no shareholders, you cannot own a Private Company Limited by Guarantee in the way the shareholders own a company with a share capital.

This article is aimed at increasing your insight about what is a Private Company Limited by Guarantee, its advantages, disadvantages and important aspects around its formation. Hopefully, the key takeaways from this article will help you understand this particular company structure well.