Companies run for good of us all

Feb 12 2008 by Karen Dent, The Journal

COMPANIES limited by guarantee are an increasingly popular vehicle for publicly funded enterprises, public/private ventures and businesses with an element of social responsibility or enterprise.

Commonly these are referred to as “not for profit”, although strictly speaking the distinction between a company limited by guarantee and a company limited by shares is that a company limited by guarantee cannot distribute its profits.

It is perfectly permissible for a company limited by guarantee to make a profit provided the profit is reinvested for the purposes of the company.

Companies limited by guarantee do not have shares, they have members. They also have memorandum and articles of association, directors and a company secretary but no shareholders.

Members can be corporate or can be individuals. The traditional model is for responsible people (business people, people from the community where the company limited by guarantee operates or officers of, for example, local authorities) to be members of a company limited by guarantee.

However, other than the initial members, there is no need to register new members or changes in membership at Companies House.

This can prove to be a problem if a company limited by guarantee is transferred.

And without an accurate record of membership it will be extremely difficult to call a general meeting or pass a written resolution. This can be particularly acute for membership organisations who incorporate via a company limited by guarantee where there can be hundreds or even thousands of members.

If in doubt about the correct membership of a company limited by guarantee, or its constitution, it is advisable to take advice from a qualified lawyer or a qualified company secretary.

It is also prudent to review membership and the memorandum and articles of association of companies limited by guarantee every two or three years to ensure that the company is fit for its purpose.